By Sinéad Carew and Harry Robertson
NEW YORK/LONDON (Reuters) -Equity indexes rose slightly on Monday as U.S. bond yields hit their highest levels since late November and investors continued to rein in bets on Federal Reserve interest rate cuts while oil prices settled lower with Gaza truce talks in focus.
The dollar index slipped in thin trading as investors focused on U.S. inflation data later this week, while the yen slipped to near 34-year lows versus the greenback as traders remained alert for any potential action from Japanese authorities to support the weakening currency.
Oil prices fell on Monday as traders monitored Middle East negotiations. A Hamas official said no progress had been made on Gaza ceasefire talks in Cairo while Israeli Prime Minister Benjamin Netanyahu said a date was set for an invasion of Rafah, the enclave's last refuge for displaced Palestinians.
Stock markets had made a slow start to the second quarter as the risk of a broader conflict in the Middle East had pushed up oil prices to their highest level since October.
Also, a much stronger-than-expected U.S. jobs report on Friday, which followed solid manufacturing data at the start of the week, caused investors to temper bets on a Federal Reserve rate cut in June.
"People are catching their breath from the underwhelming performance last week. Even with the bounce in markets on Friday, there was more damage done than constructive price action to markets overall," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
While Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut said that recent economic data had been encouraging he said investors were questioning "whether it supports this level of stock price."
Chicago Federal Reserve President Austan Goolsbee said on Monday afternoon that the U.S. central bank must weigh how much longer it can maintain its current interest rate stance without it damaging the economy.
Also on investors' minds was the upcoming earnings season, which kicks off on Friday with reports from some of the largest U.S. banks, according to Wedbush's James.
"There's elevated anxiety going into the start of earnings season for those in the bullish camp. We need to see some decent prints and raised guidance," said James.
On Wall Street, at 02:47 p.m. the Dow Jones Industrial Average rose 1.21 points, or 0.00%, to 38,902.83, the S&P 500 gained 1.27 points, or 0.02%, to 5,205.61 and the Nasdaq Composite gained 9.05 points, or 0.06%, to 16,257.57.
MSCI's gauge of stocks across the globe rose 1.98 points, or 0.25%, to 778.49. In Europe the STOXX 600 index rose 0.47%.
U.S. Treasury yields moved higher on Monday as fixed income investors lowered their expectations for how deeply the Fed will be able to cut interest rates this year after the jobs report.
The yield on benchmark U.S. 10-year notes rose 4.2 basis points to 4.42%, from 4.378% late on Friday while 30-year bond yields rose 1.9 basis points to 4.5509%.
The 2-year note yield, which typically moves in step with interest rate expectations, rose 5 basis points to 4.7823%, from 4.732% late on Friday.
In currencies, the dollar index fell 0.23% at 104.12, with the euro up 0.21% at $1.0858. Against the Japanese yen, the dollar strengthened 0.1% at 151.76.
Investor focus this week will be on the U.S. consumer price index (CPI) report on Wednesday, which is expected to show core inflation, which strips out volatile energy and food prices, slowing to 3.7% in March from 3.8% the prior month.
In energy markets, oil settled above its session lows but still lost ground for the day. U.S. crude settled down 0.55% at $86.43 a barrel while Brent LCOc1 settled at $90.38 per barrel, down 0.87% on the day.
Meanwhile, gold prices hit a record high for a seventh straight session on Monday, fuelled by central bank purchases and geopolitical tensions, while strong economic data failed to dull bullion's allure.
Spot gold added 0.41% to $2,339.09 an ounce. U.S. gold futures gained 0.69% to $2,341.80 an ounce.