* All eyes on Iran's response to output freeze
* European stocks shrug off Asian weakness
* Yen, gold, bonds suggest investor caution
By Jamie McGeever
LONDON, Feb 17 (Reuters) - Oil and stocks steadied on
Wednesday and the dollar eased, as investors looked forward to
less volatile trading, a day after world stocks recorded one of
their biggest rallies in years and oil prices swung in a 10
percent range.
After a strong start to the week for risk assets like stocks
and oil the mood was a little more cautious, with so-called safe
haven assets like the Japanese yen, government bonds and gold
all moving higher.
Investors will watch oil as a barometer of broader market
sentiment on Wednesday, in particular how a proposal from top
exporters Russia and Saudi Arabia on Tuesday to freeze output is
greeted by Iran, which was absent from the talks and is
determined to raise production
"While the commitment to freeze production at current levels
underwhelmed, in the absence of any prospect of an agreement
from Iran anything else was always going to be treated with a
healthy dose of scepticism," said Michael Hewson, chief market
analyst at CMC Markets.
After falling at first, oil recovered, and in early European
trade on Wednesday Brent LCOc1 was up 0.4 percent at $32.33.
U.S. crude CLc1 was up 0.2 percent to $29.11 a barrel.
European shares brushed off the decline in Asia to extend
this week's rally. Investors cheered the latest earnings
reports, chief among them French bank Credit Agricole (PA:CAGR)'s promise
of stable investor returns and a solid capital base.
The pan-European FTSEurofirst 300 index of leading shares
was up 0.5 percent, bringing its gains for this week to 3
percent and putting it on track for its best week in three
months. Britain's FTSE .FTSE was up 0.7 percent and Germany's
DAX .GDAXI and France's CAC 40 .FCHI both rose 0.6 percent.
Earlier, MSCI's broadest index of Asia-Pacific shares
outside Japan .MIAPJ0000PUS lost 0.6 percent, reversing early
gains of 0.4 percent, after a 3 percent rise over the previous
two sessions.
The Shanghai Composite Index .SSEC slid 0.3 percent and
Japan's Nikkei .N225 fell 1.7 percent but is still up more
than 5 percent on the week.
MSCI's index of world shares .MIWD00000PUS was flat after
rising 2.3 percent on Tuesday, its second-best gain in four
years.
E-Mini futures for the S&P 500 ESc1 slipped 0.1 percent.
The S&P 500 .SPX added 1.65 percent on Tuesday, the Dow .DJI
ended up 1.39 percent and the Nasdaq .IXIC up 2.27 percent.
.N
MOOD SWINGS
Markets now await minutes of the Federal Reserve's last
meeting to judge views of policymakers on the prospect of
further rate hikes.
Boston Fed President Eric Rosengren sounded in no hurry to
tighten. Speaking on Tuesday, Rosengren said the Fed would need
to lower economic forecasts it made in December because of the
uncertain global outlook
Doubts about the pace of any further rate increases held
back the U.S. dollar at 96.720 .DXY against a basket of
currencies. It slipped against the yen to 113.68 yen JPY= ,
though it has support around 113.60. The euro gained 0.2 percent
to $1.1165 EUR= .
The big loser was sterling, which has struggled so far in
2016 because of worries Britain might leave the European Union.
On Thursday, Prime Minister David Cameron will try to persuade
other leaders to support an agreement to keep Britain in the EU.
"We do not expect any further negative reaction to be hefty
or long-lasting as investors are unlikely to remain too much
positioned ahead of the start of the key EU summit tomorrow,"
wrote Unicredit (MI:CRDI) currency strategists in a note on Wednesday.
"While we see sterling remaining sluggish as long as the
'Brexit' scenario weighs on markets, we are more bullish over
the medium term," they said, pointing to the tight UK labour
market.
Sterling GBP= was last down on the day at $1.4265, having
shed 1 percent against the dollar on Tuesday.
In bond markets the benchmark 10-year U.S. Treasury yield
was down almost three basis points at 1.75 percent US10YT=RR
and the 10-year Bund yield was down nearly two basis points at
0.25 percent EU10YT=RR .
Gold snapped a three-day losing streak to trade up 0.4
percent at $1,205 an ounce XAU= .
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Shanghai CSI 300 and global effects interactive https://t.co/YqIYLIbInP
Chinese A-shares vs developed and emerging stocks http://link.reuters.com/rac25w
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(Editing by Larry King)