GLOBAL MARKETS-Stocks up, bond yields fall as markets mull a Fed policy pause

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US shares jump

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European shares dip as UK, Switzerland and Norway hike rates

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Dollar stuck near 7-week low after mixed Fed message

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Oil prices slip in commodity markets

(Updates prices)

By Koh Gui Qing

NEW YORK, March 23 (Reuters) -

Wall Street stocks jumped on Thursday, pushing up global stock indexes, and Treasury yields fell, after investors took comfort that the Federal Reserve might pause its interest rate rises to offset the turmoil in financial markets.

The gains in U.S stocks offset loses in Europe, where a post-Credit Suisse rebound sputtered to a halt as Switzerland, Norway and Britain all showed the year-long cycle of sharp interest rate rises was by no means over.

The Fed's hint of a pause after announcing a quarter-point rate rise on Wednesday, even as it re-stated its commitment to fight inflation, provided relief to markets. But decisions by Switzerland's SNB to jack up rates despite a torrid week following the takeover of Credit Suisse and by the Bank of England to hoist borrowing costs after a nasty inflation surprise were reminders not to get carried away.

By early afternoon, the Dow Jones Industrial Average was up 0.53%, the S&P 500 climbed 0.85%, and the Nasdaq Composite Index jumped 1.56%. The gains helped MSCI's main world share index to jump 0.85%.

Stephen Innes, a managing partner at SPI Asset Management, said investors are betting that despite the Fed's vows to tame inflation, there is a chance "the Fed loses its nerve and downshifts anyway.

"Note the modern-day history book of Fed pauses is very bullish for stocks," Innes said.

In Europe, news of the rate hikes in Switzerland and Britain helped push the European-wide STOXX 600 share index down 0.21%. The banking sector was again a drag, with the index of top European banks down 2.53%.

Investor bets of a more dovish Fed put the dollar on the back foot, with the dollar index flat after hitting a seven-week low earlier in the session. The pound barely budged, having already added to its near 5% rally over the last fortnight with a 0.22% rise to $1.22969.

John Leiper, Titan Asset Management's chief investment officer, said the BoE's hike came as no surprise following Wednesday's painful inflation data.

"We think there is more to come," he added, although he cautioned the result could be a recession.

Fed chief Jerome Powell had said that, while inflation remained a problem, the current stresses in the banking sector could have a significant impact on the U.S. economy, thereby reducing the need for rate rises.

Germany's hawkish European Central Bank rate setter, Joachim Nagel, on Wednesday said he thought euro zone rates were "approaching restrictive territory," referring to a level that curtails growth.

"I do not know when we will more or less be there," he said at an event in London. "But what I know is that when we are there we have to stay there and not come down too early."

Both the euro and yen remained up on the day after the SNB's half-point hike.

BRIGHT FUTURES

U.S. stocks sold off on Wednesday after U.S. Treasury Secretary Janet Yellen told lawmakers that she had not considered or discussed creating "blanket insurance" for U.S. banking deposits without approval from Congress.

Markets are now pricing in an approximately 65% chance of the Fed pausing at its next meeting, in May, and a 35% chance of a 25-basis-point rise.

For bond markets it meant European government bond yields - which reflect borrowing costs - were heading down again. German Bunds were back at 2.25%, having seen 10-year U.S. Treasury yields dip back below 3.5%.

Among commodities Brent oil, which has fallen nearly 9% this month, slipped 0.53% to $76.28 a barrel. Gold, which benefits from a more dovish Fed and which is up more than 8% for March, rose 1.38% to $1,996.81 an ounce.

"The thought of peak U.S. rates being within reach is bolstering (gold) prices," said Han Tan, chief market analyst at Exinity. "As long as market expectations for a 2023 rate cut remain intact, gold may well revisit the psychologically important $2,000 mark."

(Reporting by Marc Jones; Editing by Mark Heinrich, Alex Richardson, Jonathan Oatis and Leslie Adler)