By Chibuike Oguh and Dhara Ranasinghe
NEW YORK/LONDON (Reuters) -World stock markets edged higher on Monday buoyed by optimism that U.S. interest rates are likely to be lowered soon even as oil prices jumped amid increased tensions in the Middle East.
The benchmark S&P 500 index and the Dow traded higher, European shares climbed, and trading was subdued with the London market closed for a UK public holiday. Japan's blue-chip Nikkei stock index closed down almost 0.7% as the yen firmed.
The Dow Jones Industrial Average rose 0.47% to 41,367.08, the S&P 500 gained 0.11% to 5,641.02 and the Nasdaq Composite lost 0.21% to 17,840.46. MSCI's gauge of stocks across the globe rose 0.13% to 832.39.
Israel and Hezbollah traded rocket salvos and airstrikes on Sunday, stirring worries about possible oil supply disruptions if the conflict escalated. Crude prices were also buoyed by Libya's eastern-based government announcement of the closure of all oil fields on Monday, which halted production and exports.
Both Brent and U.S. crude prices rose more than 3%, with Brent trading up 3.11% to $81.48 per barrel and West Texas Intermediate adding 3.59% to $77.52 per barrel.
In a highly-anticipated speech to the Jackson Hole symposium on Friday, Federal Reserve chief Jerome Powell said the time had come to start easing policy and emphasised the central bank did not want to see further weakening in the labour market.
Also speaking at Jackson Hole, European Central Bank chief economist Philip Lane struck a more cautious note at the weekend, saying the central bank was making "good progress" in cutting euro zone inflation back to its 2% target, but success was not yet assured.
"Comparing the Fed to the ECB, the Fed is more focused on the labour market and whether it has tightened too much," said David Kohl, chief economist at Julius Baer in Frankfurt.
The yield on benchmark U.S. 10-year notes rose 0.7 basis points to 3.814%. The two-year note yield, which typically moves in step with interest rate expectations, rose 0.8 basis points to 3.921%.
Fed fund futures are fully priced for a quarter-point cut at the Sept. 18 meeting, and imply a 38% chance of a 50 bps move. The market also has 103 bps of easing priced in for this year and another 122 bps in 2025.
The ECB has already started cutting rates, with a 25 bps reduction in July, with a further two quarter point reductions priced in by year-end.
NVIDIA AWAITED
In share markets, focus was already turning to the latest earnings from AI star Nvidia (NASDAQ:NVDA), which reports on Wednesday to sky-high market expectations.
The stock is up some 160% year-to-date, accounting for around a quarter of the S&P 500's 18% year-to-date gain.
"Nvidia will beat consensus expectations, they always do, but investors are so ingrained in seeing revenue come in $2 billion-plus above the analysts' consensus or we could easily see a sell-the-news event," said Chris Weston, head of research at broker Pepperstone.
That means Nvidia would have to report sales of $30 billion or more and guidance for the third quarter of $33 billion or above, he added.
Also in focus are U.S personal consumption and core inflation data due on Friday, along with a flash reading on European Union inflation. Analysts generally assume the data will be benign enough to allow for rate cuts in September.
The dollar fell to a three-week low at 143.45 yen. It was last down around 0.03% at 144.32 yen, having fallen 1.3% on Friday. The euro edged down 0.28% to $1.1159, but remained just off a 13-month top. The British pound sterling weakened 0.14% at $1.319.
Gold prices firmed, nearing the recent record high on safe-haven demand. Spot gold added 0.27% to $2,517.22 an ounce. U.S. gold futures gained 0.29% to $2,515.70 an ounce.