(Refiles to change Wrapup number to 7 from 9)
* BOJ unexpectedly adopts negative rates in big stimulus step
* U.S. shares rise but S&P on track for worst January in 46 years
* Yen falls broadly, 10-year JGB yield plumbs record low
* BOJ, supply deal talk give oil another session of gains
By Jemima Kelly
LONDON, Jan 29 (Reuters) - World stock markets rallied and the yen slumped on Friday after the Bank of Japan took one of its main interest rates into negative territory, its boldest step yet to re-inflate the world’s third-biggest economy.
Oil prices added to this week’s gains on prospects of a deal among major producers in an effort to pare the supply glut that had pushed crude to 12-year lows.
Bond yields fell broadly, led by Japanese benchmark government bonds whose yields plunged to record lows . The Bank of Japan said it would charge 0.1 percent for excess reserves and may cut rates further if necessary, an aggressive policy pioneered by the European Central Bank.
Most investors had believed Japan’s policymakers were too cautious to ever adopt such a radical measure. The dollar surged in response, rising about three yen to an almost six-week high of 121.495. By 1230 GMT it was up 1.8 percent at 120.97.
“We’re only one month into the year and two of the major central banks have already surprised markets,” said J.P. Morgan Asset Management’s fixed income CIO in London, Nick Gartside. “The ECB has signaled more policy action in March and the BOJ has moved to negative interest rates, a policy previously thought of as unthinkable.”
The Dow Jones industrial average rose 187.85 points, or 1.17 percent, to 16,257.49, the S&P 500 gained 19.82 points, or 1.05 percent, to 1,913.18 and the Nasdaq Composite added 49.32 points, or 1.09 percent, to 4,556.00.
Despite Friday’s gains, the S&P was poised for its worst January in 46 years.
European shares tracked Asian stock markets higher, with the pan-European FTSEurofirst 300 index up 1.5 percent.
The MSCI world equity index, which tracks shares in 45 countries, rose 0.8 percent. For the month, though, the index is down 7.2 percent - its steepest fall in almost four years.
In the currency market, the dollar was up 1.1 percent against a basket of currencies at 99.604.
The yen tumbled 2.3 percent against the greenback at 121.56 yen. It shed 1.4 percent against the euro at 131.77 yen .
The promise of extra global stimulus boosted oil prices, which had already risen for three sessions on talk of a possible deal to curb excess supply.
Brent crude in London was last up $1.00, or 2.95 percent, at $34.89 a barrel, and U.S. crude futures were last up $1.05, or 3.16 percent, at $34.27 per barrel. (Additional reporting by Jemima Kelly, Atul Prakash, Dhara Ranasinghe, Anirban Nag and Marc Jones in London, Lisa Twaronite in Tokyo and Wayne Cole in Sydney, editing by Larry King and Nick Zieminski)