* Mood turns as oil prices fail to extend gains
* Yen strengthens on safe haven appeal
* CPI data raises possibility of rate hike this year
(Updates with close of European markets)
By Chuck Mikolajczak
NEW YORK, Feb 19 (Reuters) - Global equity markets retreated
on Friday, but were off earlier lows as oil prices weakened,
while short-dated U.S. bond prices rose after economic data
raised the possibility of an interest rate hike by the Federal
Reserve this year.
Brent futures LCOc1 slumped 3.7 percent to $33.01 a barrel
while U.S. crude CLc1 was down 3.4 percent at $29.74.
Advances earlier in the week were sparked by moves by oil
producers, including Saudi Arabia and Russia, to cap output were
erased after a record buildup in U.S. crude stockpiles kindled
worries over persisting global oversupply.
Brent is now down 1.1 percent for the week, while WTI crude
is up 0.9 percent.
The weakness in oil prices bled over into U.S. stocks, with
the S&P energy index .SPNY down 1.3 percent as the worst
performer of the 10 major S&P indexes.
"Seeing a little bit of a pause from the extremes that we've
been put through over the past several weeks," said Eric
Wiegand, senior portfolio manager at the Private Client Reserve
at U.S. Bank in New York.
"Now I think it's back to 'We're largely past earnings
season, we have some political events to be mindful of and the
central banks continue to be at the fore,'" he said.
The Dow Jones industrial average .DJI fell 43.93 points,
or 0.27 percent, to 16,369.5, the S&P 500 .SPX lost 1.71
points, or 0.09 percent, to 1,916.12 and the Nasdaq Composite
.IXIC added 17.24 points, or 0.38 percent, to 4,504.78.
The S&P 500 has gained 2.7 percent for the week, and was on
pace for its best weekly performance this year.
The pan-European FTSEurofirst 300 .FTEU3 index of leading
shares lost 0.7 percent, weighed by weakness in oil, bank and
auto shares, but was still up nearly 4 percent for the week.
Underlying U.S. inflation in January picked up by the most
in nearly 4-1/2 years, according to data on Friday, in a sign of
a pick-up in price pressures that could allow the Fed to
gradually raise interest rates this year.
Cleveland Fed President Loretta Mester said on Friday rates
will likely need to remain accommodative for some time, while
other officials maintain that weak inflation and global
turbulence are enough reasons to pause on further hikes.
Prices on benchmark 10-year Treasuries US10YT=RR pulled
back as equity losses lessened, last up 2/32 in price to yield
1.7587 percent, while yields on shorter-dated U.S. Treasury debt
rose after the CPI data, with two-year Treasury notes down 2/32
in price to yield 0.7459 percent.
The yen rose JPY= 0.72 percent against the dollar to
$112.68, and the greenback .DXY dipped 0.36 percent against a
basket of major currencies.
MSCI's index of world shares .MIWD00000PUS was 0.3 percent
lower, but was up 3.6 percent for the week, putting it on pace
for its best week since October.
The weekly jump came after gains in oil eased some of the
deflation concerns in the developed world earlier in the week.
The global oil market is oversupplied by around 1.8 million
barrels per day (bpd), but that glut could be halved if a deal
to freeze oil production at last month's levels takes effect, a
top Russian energy official said on Friday.