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GLOBAL MARKETS-Oil on the boil, with stocks and bonds on the backfoot

* World shares drop after 3-day gains, retail frenzy slows

* Oil at 1-year high on OPEC+ output cut

* Benchmark bond yields rising, curves steepening

* Volatility index falls to regular levels

* Stealth China policy tightening in focus

LONDON, Feb 4 (Reuters) - Stock markets fought for a fourth day of gains as a near one-year oil price high, a revitalised dollar and rising bond yields turned attention to inflation and normalising economies.

With an easing of the WallStreetBets/Reddit retail trading tumult, markets were back in their comfort zone of corporate earnings, economic data and central bank meetings.

Oil was approaching $60 a barrel on Thursday after OPEC and its allies extended production cuts. London, Frankfurt and Paris share indexes edged 0.1%-0.5% higher, helped by more German stimulus and as the dollar’s renewed swagger pushed the euro back under $1.20.

Britain’s pound initially saw is biggest fall in three weeks as traders waited to see whether the Bank of England would endorse negative interest rates as a future option. When it did, with the caveat it would not be for at least for six months, sterling jumped and turned positive.

At the end of last year, expectations were building that their introduction could be imminent, but Britain’s speedy COVID-19 vaccine rollout has since eased those bets.

“The market expected the BoE to talk about negative rates, but it’s probably bit a relief rally (in sterling) as they didn’t come down more strongly in favour of them,” said Saxo Bank’s head of FX strategy John Hardy.

“The (BoE) committee was clear that it did not wish to send any signal that it intended to set a negative bank rate at some point in the future,” its chief Andrew Bailey said.

Hopes that the COVID-19 pandemic can be brought to heel by extensive vaccination programmes, combined with expectations of unswerving global economic stimulus, has begun to see bond market focus returning to rising debt and possible inflation.

Germany’s 30-year government bond yield on Thursday was almost back in positive territory for the first time since September and market gauges of future euro zone inflation were at their highest since may 2019.

For the U.S., the gap between two- and 10-year Treasury yields at more than 100 basis points is now the widest in almost three years. That is seen as a another key indicator of an approaching economic recovery.

New U.S. President Joe Biden had told House Democrats on Wednesday he was more concerned that too little relief would be provided rather than too much.

GOOGLE IT

U.S. stock futures were also up ahead of trading there with traders digesting a faster-than-expected drop in weekly jobless claims and waiting on meeting between new U.S. Treasury Secretary Janet Yellen and financial regulators to discuss the recent retail trading volatility.

Wall Street had seen the NYSE Fang+ index of leading tech giants hit another record high on Wednesday, thanks to a 7.4% gain in Google parent Alphabet following strong earnings.

But markets had been softer in Asia overnight. MSCI’s ex-Japan Asian-Pacific index fell 0.6%, led by 1.3% and 0.4% drops in South Korea and China.

Japan’s Nikkei lost 1%, ending a three-day winning streak.

Rising Chinese short-term interest rates kept risk appetite low, though analysts also noted position adjustments before the Lunar New Year starting next week are likely to play a role too.

Higher interest rates have raised worries that Chinese policymakers may be starting to shift to a tighter stance to rein in share prices and property markets.

“There’s persistent speculation that the Chinese authorities may want to tighten its policy,” said Wang Shenshen, senior strategist at Mizuho Securities.

Markets on the whole have calmed in the past few days with the Cboe Volatility index slipping to its lowest levels in over a week.

As the retail trading frenzy faded, stock prices of GameStop and other social media favourites have steadied, although cryptocurrency Ethereum has been on a tear ahead of the introduction of futures contracts next week.

Among the mainstream currencies, the dollar hit a near-three-month high versus the Japanese yen of 105.19.

The euro lost 0.4% to $1.1989, having already hit a two-month low overnight.

The single currency had failed to capitalise on improved sentiment in Italy after former European Central Bank chief Mario Draghi accepted the task of trying to form a new government in the country.

Gold fell 1% to $1,810 per ounce though oil continued to advance after the OPEC+ alliance of major producers stuck to a reduced output policy and U.S. crude stockpiles fell to their lowest since March last year.

U.S. crude rose 0.8% to $56.14 per barrel and Brent gained 0.6% to $58.89. Both stood near their highest levels in about a year.

Additional Reporting by Sujata Rao in London and Hideyuki Sano in Tokyo; Editing by Larry King, Kirsten Donovan and Alexander Smith

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