Higher oil lifts European stocks, bond yields rise

By Nigel Stephenson

LONDON (Reuters) - Higher oil prices helped lift European shares on Thursday, following earlier falls in Asian stocks, and led German government bond yields to bounce off one-month lows, while the dollar powered higher against the yen.

Wall Street, where a sharp fall on Wednesday set the gloomy tone in Asia, was set to open higher, according to index futures <1YMc1>.

The pan-European FTSEurofirst stocks index , which opened almost 1 percent lower, was up about 0.8 percent, led higher by oil stocks <.SXEP>.

Germany's Dax index <.GDAXI> gained 0.6 percent and Britain's FTSE 100 <.FTSE> added 0.4 percent.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.4 percent, moving back towardS a two-month low touched on Tuesday.

But Japan's Nikkei stock index <.N225> erased early losses and ended up 0.4 percent as the yen fell against the dollar.

The gloomy tone in stocks markets had been set in the U.S. markets on Wednesday. The Dow Jones Industrial Average fell 1.2 percent on Wednesday, its biggest one-day fall since Feb. 11, though this only reversed Tuesday's 1.2 percent rise.

German 10-year yields , the benchmark for euro zone borrowing costs, hit a one-month low of 0.1 percent in early trade but reversed course as oil and stocks rose in price. They last stood at 0.15 percent, up 3 basis points on the day.

"It shows that investors are very reluctant to buy Bunds at these low yields," said Societe Generale strategist Ciaran O'Hagan, pointing to fears of a repeat in the sharp rise in yields seen after record lows were struck in April last year.

In currency markets, the dollar strengthened 0.9 percent to a two-week high against the yen after an academic seen to be close to Bank of Japan Governor Haruhiko Kuroda said the BOJ was likely to expand its monetary stimulus soon.

Takatoshi Ito, a former senior finance ministry official, said the BOJ, which introduced negative rates earlier this year, could act in June or July.

This follows a series of warnings from Japanese Finance Minister Taro Aso that Tokyo would intervene to curb any excessive one-sided gains in the yen.

"With policy easing speculation gaining ground and the Finance Minister talking down the yen, it is clear they do not want a stronger currency," said Niels Christensen, FX strategist at Nordea.

The yen was last at 109.32 to the dollar, having touched an 18-month high of 105.55 on May 3.

The euro weakened 0.4 percent to $1.13.81 and sterling was flat at $1.4439 after Bank of England policymakers voted unanimously to keep interest rates on hold.

The British economy has shown signs of weakening recently, with money markets pricing in a chance of an interest rate cut by the end of the year, and some in the market had speculated at least one policymaker could vote for lower rates.

Oil prices rose after the International Energy Agency raised its 2016 global oil demand growth forecast and said output disruptions could reduce a supply glut.

Brent crude was last up 1 percent at $48 a barrel while U.S. West Texas Intermediate was up 1.4 percent at nearly $47 per barrel, their highest in six months.

Investors were also watching Brazil, where the Senate voted to suspend President Dilma Rousseff prior to putting her on trial for breaking budget laws.

The real was 0.1 percent stronger at 3.45 per dollar.

(Additional reporting by Lisa Twaronite in Tokyo, Jamie McGeever and Anirban Nag in London; Editing by Toby Chopra and Dominic Evans)