Trade conflict looms but higher rates, oil prices help some stocks

By Trevor Hunnicutt

NEW YORK (Reuters) - A world stock index climbed as bank and energy shares rose on Friday, but the momentum was sapped by a report that Washington may fire a new salvo in its trade war with Beijing.

U.S. President Donald Trump has directed aides to place U.S. tariffs on about $200 billion more of Chinese goods, according to a person familiar with the matter. This was first reported by Bloomberg.

That news deflated the confidence of investors, who earlier pushed the MSCI All-Country World index, which tracks shares in 47 countries, to its highest level since Sept. 4. The index rose 0.22 percent on the day.

On Wall Street, financial shares were helped by higher rates, which are seen to benefit banks, which can charge higher interest. Energy stocks got a boost from rising U.S. oil prices.

The Dow Jones Industrial Average rose 8.68 points, or 0.03 percent, to 26,154.67, the S&P 500 gained 0.8 points, or 0.03 percent, to 2,904.98 and the Nasdaq Composite dropped 3.67 points, or 0.05 percent, to 8,010.04. [.N]

Benchmark 10-year Treasury notes briefly hit the psychologically significant 3 percent level for the first time in more than a month as prices on U.S. government bonds fell on economic data that seems solid enough to support plans by the Federal Reserve to raise rates another two times in 2018.

U.S. crude oil futures settled up 0.58 percent to $68.99 per barrel. Brent fell 0.12 percent to $78.09. The United States is renewing sanctions on Iran, a major oil producer, after withdrawing from a nuclear deal forged in 2015 between Tehran and world powers. [O/R]

The U.S. dollar index rose 0.47 percent. The greenback has been a safe haven from setbacks on the trade front.

Copper, used heavily by China, lost 2.11 percent to $5,905.50 a ton. The Chinese yuan traded offshore slipped to 6.88 per dollar from a high of 6.84 earlier in the session.

Chinese shares earlier had retreated as data showed real estate investment in the country fell in August, raising concern that a cooling property market could increase risks for Beijing's economic outlook as the trade environment worsens.

"While the potential for a trade deal in the near-term remains low, a resumption of dialogue could lift sentiment and support markets," analysts at Credit Suisse wrote in a note to clients.

RATE HIKE LIFTS LIRA

A sharp interest rate increase by Turkey's central bank to support a tumbling lira boosted emerging markets. The bank hiked its benchmark interest rate by more than one-third, to 24 percent.

Currency crises in both Turkey and Argentina have stoked fears of contagion over the past several weeks, hammering emerging market assets from Indonesia and India to South Africa.

Turkish lira implied volatility gauges fell to their lowest in more than a month, as sentiment continued to improve.

"The bold decision (by Turkey's central bank) reduces the risk that a full-scale financial crisis may unfold," analysts at Rabobank wrote in a note to clients.

"The central bank's efforts must be accompanied by an implementation of constructive macro prudential policies by the administration."

Emerging market stocks tracked by MSCI rose 0.96 percent.

(Graphic: Emerging market currencies battered: https://reut.rs/2p8rvKO)

(Graphic: World FX rates in 2018: http://tmsnrt.rs/2egbfVh)

(Reporting by Trevor Hunnicutt; additional reporting by Ritvik Carvalho and Saikat Chatterjee in London; Editing by Dan Grebler and Phil Berlowitz)