February 12, 2018 / 8:15 PM / a year ago

GLOBAL MARKETS-World shares rebound after worst week in two years

(Adds oil, gold settlement prices, close of European markets)

* European shares snap seven-day losing streak

* Bond yields rise on strong growth outlook, inflation fears

* Oil rises as global markets stabilize

By Herbert Lash

NEW YORK, Feb 12 (Reuters) - World shares rallied on Monday in a broad advance that brushed aside fresh rises in global bond yields the fear of rising inflation drove up as investors shifted asset allocations and tried to put last week's worst rout in two years past them.

The yield on U.S. five-year Treasury Inflation Protected Securities, bonds known as TIPS that are designed to protect against inflation, rose to its highest level since 2009. Concerns about rising consumer prices and a bigger U.S. budget deficit sparked a sell-off in fixed income markets.

The dollar fell against the euro after its best week against the single currency in nearly 15 months. A return of risk appetite hurt the U.S. currency and helped higher-yielding emerging market currencies as well as commodity-linked currencies such as the Australian and Canadian dollars.

Volatility picked up, with the major indexes on Wall Street climbing more than 1 percent shortly after the open, pared about half that advance and then gained further. The Dow rose more than 2 percent with the Nasdaq just below that mark.

MSCI's all-country world index of stock performance in 47 countries rose 1.36 percent, led by Apple Inc and Amazon.com. Apple rose 4.3 percent and Amazon 3.6 percent.

The pan-European FTSEurofirst 300 index of leading regional shares closed up 1.22 percent while MSCI's gauge of emerging market stocks rose 1.03 percent.

The market is likely to remain choppy over the next couple of weeks as a tug-of-war from short-term negative price momentum meets long-term fundamentals, said Jeff Schulze, investment strategist at ClearBridge Investments in New York.

The new tax regime President Donald Trump signed in December and increased federal spending will add stimulus to the U.S. economy, he said.

"I do believe we haven't seen the low, we're pretty close to it and that this is a buying opportunity, just longer term in nature," Schulze said.

A major shift in outlook is taking place that involves the reallocation across different areas and sectors of the market, said Peter Kenny, senior market strategist at Global Markets Advisory Group, in New York.

"We're at an inflection point in the market," Kenny said. "It's very significant for a lot of reasons. It involves fear of inflation, a long overdue and much-anticipated pullback, and it involves elevated equity valuations," he said.

The Dow Jones Industrial Average rose 481.95 points, or 1.99 percent, to 24,672.85. The S&P 500 gained 42.69 points, or 1.63 percent, to 2,662.24 and the Nasdaq Composite added 122.53 points, or 1.78 percent, to 6,997.02.

U.S. Treasury yields rose across most maturities, with the benchmark 10-year note hitting a four-year high. The prospect of strong U.S. economic growth and global central banks normalizing years of easy monetary policy drove yields higher.

The 10-year Treasury note fell 7/32 in price to yield 2.8585 percent after earlier hitting 2.902 percent.

Euro zone government bond yields edged higher on signs that policymakers, with their eyes on inflation, will maintain a monetary tightening path regardless of equity market volatility.

Germany's 10-year bond yields, the euro zone's benchmark, traded around 0.76 percent after earlier rising as high as 0.786 percent.

The dollar index fell 0.26 percent, with the euro up 0.38 percent to $1.228. The Japanese yen strengthened 0.11 percent versus the greenback at 108.69 per dollar.

Oil recouped some of last week's steep losses as global equities steadied.

Brent crude futures fell 20 cents to settle $62.09 a barrel while U.S. West Texas Intermediate crude futures for March delivery rose 9 cents to settle at $59.29 a barrel.

U.S. gold futures settled up 0.8 percent at $1,326.40.

Reporting by Herbert Lash; Editing by Nick Zieminski

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