* Oil price trims losses after hitting multi-year lows
* Europe closes lower as early rally fades
* Historic Fed rate decision looms
(Adds close of European markets)
By Chuck Mikolajczak
NEW YORK, Dec 14 (Reuters) - Global equity markets were
subjected to volatile trading on Monday as oil prices bounced
from multi-year lows while weakness in credit markets weighed on
sentiment, with investors bracing for an expected U.S. interest
rate hike later this week.
Brent crude LCOc1 was up 0.6 percent at $38.14 after
falling as low as $36.33 a barrel, its weakest since December
2008. A fall below $36.20 would take oil prices down to levels
not seen since 2004. U.S. crude CLc1 gained 2.1 percent at
$36.39 after earlier falling as low as $34.53.
The earlier declines in energy weighed on commodity stocks
in Europe, which turned negative after a positive start, while
the S&P energy sector .SPNY reversed course and was up 0.3
percent after falling as much as 1.3 percent earlier in the
session.
Jitters in high-yield bond markets, which are among the most
vulnerable to higher U.S. rates, also rattled investors.
Lucidus Capital Partners has liquidated its entire
portfolio and plans to return the $900 million it has under
management to investors next month, according to a media report.
The SPDR Barclays (L:BARC) High Yield Bond ETF JNK.P was off 0.9
percent at $33.38 and the iShares iBoxx High Yield Corporate
Bond ETF HYG.P lost 0.9 percent at $78.77.
"There are three things that have raised anxiety and
volatility in the equity markets, one is oil and whether the
continued deflation there is signaling a global lack of demand
for maybe not just oil but for everything," said David
Donabedian, chief investment officer at Atlantic Trust in
Baltimore, Maryland.
"What has happened in the credit markets recently is also a
big deal, and all of those issues emerging on the doorstep on
the Fed getting ready to raise interest rates."
MSCI's all-country world index .MIWD00000PUS lost 0.6
percent, while the pan-European FTSEurofirst 300 .FTEU3 index
closed down 1.8 percent to 1,371.76, as an earlier gain of 1
percent dissipated.
The Dow Jones industrial average .DJI rose 4.08 points, or
0.02 percent, to 17,269.29, the S&P 500 .SPX lost 2.05 points,
or 0.1 percent, to 2,010.32 and the Nasdaq Composite .IXIC
dropped 12.24 points, or 0.25 percent, to 4,921.22.
Benchmark 10-year Treasury notes US10YT=RR lost 25/32 in
price to yield 2.227 percent.
The U.S. dollar slipped against major currencies, giving
back earlier gains to resume last week's weakness on worries
that heightened market volatility, caused by the tumult in oil
prices and credit markets, could limit the number of U.S.
interest rate hikes.
The dollar index .DXY was down 0.1 percent at 97.48 and
the euro EUR= was up 0.3 percent at $1.1017.
A Fed rate hike on Wednesday, following a two-day policy
meeting, is a near certainty in the eyes of investors. It would
be the first increase after nearly a decade of loose policy that
began with the onset of the global financial crisis, and is
viewed as a first step towards normalizing monetary conditions.
Traders see an 85 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.
But against a backdrop of crumbling oil prices and stress in
the high-yield bond market, analysts said the pace of future
rate hikes is of key interest to investors.
(Editing by Bernadette Baum and Nick Zieminski)