* European, U.S. stocks rally on energy lift
* Oil bounces off multi-year lows
* Dollar advances after inflation data
(Adds close of U.S. markets, oil settlement prices)
By Chuck Mikolajczak
NEW YORK, Dec 15 (Reuters) - Global equity markets rallied
on Tuesday as oil prices bounced from multi-year lows, though
investors remained leery about the possibility of increased
volatility with a widely-anticipated increase in U.S. interest
rates due later this week.
Oil reversed early falls to snap a six-day slide as bargain
hunters moved in after crude dropped to its lowest level since
December 2008 in the prior session. The jump helped boost
equities in both the United States and the Europe.
The S&P energy index .SPNY rallied 2.9 percent as the best
performing of the 10 major S&P sectors, its biggest daily
percentage gain in a month.
Top officials at the Federal Reserve on Tuesday began a
two-day policy meeting that is expected to end with the first
U.S. interest rate increase since 2006.
The rate rise is largely priced in, as traders see more than
an 80-percent chance the central bank will lift its targeted
rate range to 0.25 percent to 0.50 percent from the current zero
to 0.25 percent range, according to CME Group's (O:CME) FedWatch
program.
"The economy is getting a little bit better and raising
rates does not mean the market is going lower, it's actually a
positive sign," said Joseph Benanti, managing director, sales
and trading at Rosenblatt Securities in New York.
The Dow Jones industrial average .DJI rose 156.41 points,
or 0.9 percent, to 17,524.91, the S&P 500 .SPX gained 21.47
points, or 1.06 percent, to 2,043.41 and the Nasdaq Composite
.IXIC added 43.13 points, or 0.87 percent, to 4,995.36.
MSCI's all-country world index .MIWD00000PUS rose 0.9
percent, while the pan-European FTSEurofirst 300 .FTEU3 index
closed up 2.9 percent, its best day since Oct. 5.
Brent crude LCOc1 settled up 1.4 percent at $38.45 after
falling as low as $36.33 a barrel on Monday, its weakest since
December 2008. U.S. crude CLc1 settled up 2.9 percent at
$37.35.
Prices have been falling for weeks due to a global glut of
oil and, in the northern hemisphere, a mild start to winter.
Low oil prices and worries about higher interest rates have
unnerved investors through the energy-dominated U.S. high-yield
corporate bond markets.
Massive amounts of debt sold by energy and mining companies
in recent years, much of it in the form of high-yield, or
'junk,' bonds from small shale gas firms, is facing a wave of
credit rating downgrades, and defaults are rising.
Losses this year, as measured by the iShares iBoxx High
Yield Corporate Bond ETF HYG.P , are more than 10 percent, in
what some investors see as an echo of the 2008 credit crisis.
The ETF was up 1.6 percent to $80.12 on Tuesday.
"This is a dead-cat bounce because where there is smoke
there is fire and there is plenty of smoke for sure in that
high-yield bond market," said Ken Polcari, Director of the NYSE
floor division at O'Neil Securities in New York.
Benchmark 10-year Treasury notes US10YT=RR lost 13/32 in
price to yield 2.2711 percent.
The dollar index .DXY , which measures the U.S. currency
against a basket of its peers, climbed 0.6 percent to 98.199.
Data showed inflation pressures rose in the United States in
November, further cementing expectations for a hike in interest
rates. The euro EUR= lost 0.6 percent to $1.0923.