GLOBAL MARKETS-Shares steady and yields drop on Fed minutes relief

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By Danilo Masoni

MILAN, May 26 (Reuters) - World stock markets broadly stabilised on Thursday and bond yields eased as no hawkish surprises from the latest U.S. Federal Reserve minutes helped soothe immediate worries over the impact of rate hikes on economic growth.

The account of the Fed's May meeting showed a majority backed rate hikes of 50 basis points in June and July to combat inflation, but appeared to leave policymakers flexibility to possibly change tack in September.

That softened bets of even more aggressive steps by the Fed, providing a degree of relief, although sentiment stayed fragile as uncertainty over the impact of inflation and rate hikes on economic and earnings growth continued to haunt investors.

"It would have been difficult to be even more hawkish and so there is a bit of relief. But while things haven't worsened, they haven't improved either," said Marco Vailati, head of research and investments at Cassa Lombarda in Milan.

"The environment hasn't changed. Just see how hysterical is the reaction to even the slight earnings miss, especially for stocks with valuations tied to future profit growth," he added.

U.S. futures wavered in European trade following Wednesday's rally on Wall Street and by 1028 GMT S&P 500 e-mini futures were 0.16% higher but Nasdaq e-minis slipped 0.1%.

Europe's pan-regional STOXX 600 equity benchmark index rose 0.2%, while a more subdued mood saw the MSCI's broadest index of Asia-Pacific shares outside Japan fall 0.15%.

The MSCI's benchmark for global stocks was up 0.1% at 631 points. The index is off the November 2020 lows hit this month but still down more than 16% so far in 2022.

"It's very difficult for investors to navigate this market at the moment with high inflation, slower growth, rising interest rates and concerns about the Chinese (COVID-19) predicament, but also stagflation is looming as a potential issue at the same time," said Ryan Felsman, a senior economist at fund manager CommSec.

All participants at the Fed's May 3-4 meeting supported a half-percentage-point rate increase, the first of that size in more than 20 years, and "most participants" judged that further hikes of that magnitude would "likely be appropriate" at the Fed's policy meetings in June and July, according to minutes from the meeting.

While some investors worry that overly aggressive interest rate hikes by the Fed could tip the economy into recession, Wednesday's minutes seemed to suggest the Fed would pause its tightening streak to assess the impact on growth.

"The minutes are consistent with a range of policy options thereafter, but a slower pace of tightening seems the most likely course," wrote Paul Donovan, Chief Economist at UBS Global Wealth Management.

The immediate attention is on Thursday's Commerce Department release of its second take on first-quarter GDP, which analysts expect to show a slightly shallower contraction than the 1.4% quarterly annualised drop originally reported.

In Asia, Chinese blue-chips < .CSI300> reversed earlier losses to rise 0.25% after struggling to find direction for most of the session, as investors fretted over signs of slowdown but took comfort in comments from Premier Li Keqiang on stabilising the ailing economy.

South Korea's central bank raised interest rates for a second consecutive meeting as it grapples with consumer inflation at 13-year highs.

In foreign exchange markets, the dollar fell closer to the one-month low hit on Tuesday. The dollar index, which tracks the U.S. unit against a basket of major peers, was down 0.24% on the day at 101.81.

U.S. Treasury yields eased. The 10-year yield fell to its lowest level since April and was last down 3 basis points (bps) at 2.720% and the policy-sensitive two-year yield declined 4.6 bps.

Crude oil extended a cautious rally on signs of tight supply, with Brent crude up 0.8% at $114.9 per barrel and U.S. crude up 1% at $111.38.

Spot gold was down 0.4% at $1,845.4 per ounce.

(Reporting by Danilo Masoni and Andrew Galbraith, additional reporting by Vidya Ranganathan; Editing by Emelia Sithole-Matarise)