Oil, European stocks gain as volatility eases

By Jamie McGeever

LONDON (Reuters) - Oil and stocks steadied on Wednesday and the dollar eased, as investors looked forward to less volatile trading, a day after world stocks recorded one of their biggest rallies in years and oil prices swung in a 10 percent range.

After a strong start to the week for risk assets like stocks and oil the mood was a little more cautious, with so-called safe haven assets like the Japanese yen, government bonds and gold all moving higher.

Investors will watch oil as a barometer of broader market sentiment on Wednesday, in particular how a proposal from top exporters Russia and Saudi Arabia on Tuesday to freeze output is greeted by Iran, which was absent from the talks and is determined to raise production.

"While the commitment to freeze production at current levels underwhelmed, in the absence of any prospect of an agreement from Iran anything else was always going to be treated with a healthy dose of scepticism," said Michael Hewson, chief market analyst at CMC Markets.

After falling at first, oil recovered, and in early European trade on Wednesday Brent was up 0.4 percent at $32.33. U.S. crude was up 0.2 percent to $29.11 a barrel.

European shares brushed off the decline in Asia to extend this week's rally. Investors cheered the latest earnings reports, chief among them French bank Credit Agricole's promise of stable investor returns and a solid capital base.

The pan-European FTSEurofirst 300 index of leading shares was up 0.5 percent, bringing its gains for this week to 3 percent and putting it on track for its best week in three months. Britain's FTSE was up 0.7 percent and Germany's DAX and France's CAC 40 both rose 0.6 percent.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.6 percent, reversing early gains of 0.4 percent, after a 3 percent rise over the previous two sessions.

The Shanghai Composite Index slid 0.3 percent and Japan's Nikkei fell 1.7 percent but is still up more than 5 percent on the week.

MSCI's index of world shares was flat after rising 2.3 percent on Tuesday, its second-best gain in four years.

E-Mini futures for the S&P 500 slipped 0.1 percent. The S&P 500 added 1.65 percent on Tuesday, the Dow ended up 1.39 percent and the Nasdaq up 2.27 percent.

MOOD SWINGS

Markets now await minutes of the Federal Reserve's last meeting to judge views of policymakers on the prospect of further rate hikes.

Boston Fed President Eric Rosengren sounded in no hurry to tighten. Speaking on Tuesday, Rosengren said the Fed would need to lower economic forecasts it made in December because of the uncertain global outlook.

Doubts about the pace of any further rate increases held back the U.S. dollar at 96.720 against a basket of currencies. It slipped against the yen to 113.68 yen, though it has support around 113.60. The euro gained 0.2 percent to $1.1165.

The big loser was sterling, which has struggled so far in 2016 because of worries Britain might leave the European Union. On Thursday, Prime Minister David Cameron will try to persuade other leaders to support an agreement to keep Britain in the EU.

"We do not expect any further negative reaction to be hefty or long-lasting as investors are unlikely to remain too much positioned ahead of the start of the key EU summit tomorrow," wrote Unicredit currency strategists in a note on Wednesday.

"While we see sterling remaining sluggish as long as the 'Brexit' scenario weighs on markets, we are more bullish over the medium term," they said, pointing to the tight UK labour market.

Sterling was last down on the day at $1.4265, having shed 1 percent against the dollar on Tuesday.

In bond markets the benchmark 10-year U.S. Treasury yield was down almost three basis points at 1.75 percent and the 10-year Bund yield was down nearly two basis points at 0.25 percent.

Gold snapped a three-day losing streak to trade up 0.4 percent at $1,205 an ounce.

(Editing by Larry King)