October 17, 2017 / 12:53 PM / a year ago

GLOBAL MARKETS-Earnings and commodities keep stocks bulls happy

* World equity markets stay near record highs

* Wall Street futures point to steady start for U.S. stocks

* Nikkei logs 11th day of gains, rest of Asia flat

* Oil highest since Sept as Iraq govt seizes Kirkuk

* U.S. short-term rates soar on report Trump meets Taylor

* Sterling sinks as ratesetters talk

* Euro down for 4th day for first time since May

By Marc Jones

LONDON, Oct 17 (Reuters) - World stocks stayed near record highs on Tuesday, as a flurry of U.S. earnings and a rally in commodity markets helped underpin one of the most durable bull runs of recent history.

Stronger profits from investment bank Morgan Stanley and healthcare majors Johnson & Johnson and UnitedHealth looked set to keep Wall Street's rally intact when it reopens after largely flat morning on Europe's big bourses.

The dollar meanwhile was enjoying its longest winning streak since February, posting a fourth day of gains supported by broad-based weakness for the euro and the pound.

It had been lifted overnight, along with interest rate-sensitive 2-year Treasury yields, by reports that U.S. President Donald Trump might pick Stanford University economist John Taylor to lead the Federal Reserve after Janet Yellen’s term ends next year.

Taylor is an advocate of a rules-based approach to interest rate policy that would likely see official Fed rates much higher than at present - at least 3.5 percent according to some economists.

The pop in short-yields was not matched at the long end though and the 2-to-10 year U.S. yield curve hit its shallowest in more than a year before markets began to price in a bit more caution in European trading.

"Fed chairs have often influenced U.S. monetary policy quite considerably in the past. And I would certainly see Taylor as a candidate who would fit in this pattern," Commerzbank analyst Thu Lan Nguyen said.

"That makes one thing clear: should Trump nominate Taylor as Yellen's successor the U.S. dollar would initially appreciate notably."

German Bunds and UK gilts had initially followed U.S. yields higher. British and euro zone inflation figures both came in strong to bolster bets on the first UK rate rise in over a decade and stimulus withdrawal from the ECB.

The moves then unravelled amid central banker chatter that was seen as being more mixed than of late.

The euro dropped to $1.1754 while sterling fell half a percent on the day to as low as $1.3192 as 10-year gilt yields dropped to a 3-week low.

Silvana Tenreyro, a new member of the Bank of England's monetary policy committee, said upward pressure on UK inflation from sterling's weakness would start to wane in the coming months.

Earlier on Tuesday, data showed Britain's inflation rate hit 3 percent, above the BoE's 2 percent target but in line with expectations.

"Comments coming out (from BoE policymakers) uniformly signalled a dovish and cautious stance among policymakers and indicated a growing debate internally on the path for interest rates forward," said Neil Jones, Mizuho’s head of currency sales for hedge funds in London.


The ViX volatility gauge, which measures market nervousness, stayed near recent record lows below 10 percent and while Asia stocks had been mixed overnight, Japan’s Nikkei eked out its 11th straight daily gain as eyes there turned to the weekend’s Japanese elections.

European shares were close to flat as U.S. trading neared, underpinned by solid earnings from food group Danone and education specialist Pearson and talk of a break-up of investment bank Credit Suisse.

"More investors are saying they want to overweight Japan over the next 12 months but that (sentiment) still lags behind Europe and EM (emerging markets)," said Bank of America Merrill Lynch's chief Japan FX/Equity strategist, Shusuke Yamada, as the bank published its latest survey of global fund managers.

That survey also showed a record net 85 percent of fund chiefs now think bonds are overvalued and overall are holding the least amount of cash in 2-1/2 years.

One of Monday's big movers, oil, consolidated a near month-high having spiked after Iraqi forces seized the oil-rich city of Kirkuk from fighters loyal to the country's semi-autonomous Kurdish Regional Government.

After months of rangebound trading during which OPEC-led supply cuts supported crude values but rising U.S. output capped them, prices have moved up significantly this month.

Brent crude oil was 30 cents higher at $58.14 a barrel by 1230 GMT, up almost a third from its mid-year levels. U.S. West Texas Intermediate (WTI) crude was nudging up again too at $52.08.

There were unconfirmed reports that Kurdish forces had shut around 350,000 barrels per day (bpd) of oil production from major fields.

"The 500,000 bpd Kirkuk oilfield cluster is at risk," Goldman Sachs said in a note to clients.

Tension between the United States and Iran is also rising, after U.S. President Donald Trump on Friday refused to certify Iran's compliance over a nuclear deal which removed long-running sanctions.

"If there (were new sanctions), we expect that several hundred thousand barrels of Iranian exports would be immediately at risk," Goldman said. During the previous round of sanctions around 1 million bpd of oil was cut from markets.

Bellwether industrial metal copper eased back 0.7 percent after it had been sent soaring to a three-year high of $7,134.5 a tonne by its biggest gain in about 10 months.

Mexico's peso meanwhile flirted with a five-month low on concerns over the future of the North American Free Trade Agreement (NAFTA) after Washington presented a number of hard-line proposals in re-negotiation talks.

Additional reporting by Hideyuki Sano in Tokyo; editing by John Stonestreet

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