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GLOBAL MARKETS-Equities volatile on oil swings as Fed decision looms

Published 15/12/2015, 08:20 am
© Reuters.  GLOBAL MARKETS-Equities volatile on oil swings as Fed decision looms
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* Oil prices rebound from multi-year lows

* Europe closes lower as early rally fades

* Fed rate decision due Wednesday (Adds close of U.S. markets, oil settlement prices)

By Chuck Mikolajczak

NEW YORK, Dec 14 (Reuters) - Global equity markets swung between gains and losses on Monday, as volatile oil prices rebounded from multi-year lows while weakness in credit markets weighed on sentiment ahead of an expected U.S. interest rate hike later this week.

Brent crude LCOc1 settled down 0.03 percent at $37.92 after falling as low as $36.33 a barrel, its weakest since December 2008. A fall below $36.20 would take oil down to levels not seen since 2004. U.S. crude CLc1 settled up 1.9 percent at $36.31 after earlier falling as low as $34.53. urn:newsml:reuters.com:*:nL8N1433EQ

The early declines in energy weighed on commodity stocks in Europe, which turned negative after a positive start, while the S&P energy sector .SPNY reversed course and was up 0.8 percent after falling as much as 1.3 percent early in the session. urn:newsml:reuters.com:*:nL8N1433RZ

Jitters in high-yield bond markets, which are among the most vulnerable to higher U.S. interest rates, also rattled investors. urn:newsml:reuters.com:*:nL1N1430UP Lucidus Capital Partners has liquidated its entire portfolio and plans to return the $900 million it has under management to investors next month, according to a media report. urn:newsml:reuters.com:*:nL3N1433Q3

The SPDR Barclays (L:BARC) High Yield Bond ETF JNK.P was off 0.8 percent at $33.38 and the iShares iBoxx High Yield Corporate Bond ETF HYG.P lost 0.9 percent at $78.83.

"It's the (Fed) communiqué that's going to count, but the real problem here is the junk bond market, which is tied to oil prices," said Peter Cardillo, chief market economist at First Standard Financial in New York.

"A lot of paper written to oil companies is in question, and so it ties in with the price of oil."

MSCI's all-country world index .MIWD00000PUS lost 0.4 percent, while the pan-European FTSEurofirst 300 .FTEU3 index closed down 1.8 percent to 1,371.76, as an early gain of 1 percent evaporated.

The Dow Jones industrial average .DJI rose 103.29 points, or 0.6 percent, to 17,368.5, the S&P 500 .SPX gained 9.57 points, or 0.48 percent, to 2,021.94 and the Nasdaq Composite .IXIC added 18.76 points, or 0.38 percent, to 4,952.23.

Benchmark 10-year Treasury notes US10YT=RR lost 25/32 in price to yield 2.252 percent. urn:newsml:reuters.com:*:nL1N1431NA

The dollar edged higher but traded in narrow ranges, although nervousness about what the Federal Reserve will say in its post-meeting statement on Wednesday after an expected rate hike has limited the greenback's upside. urn:newsml:reuters.com:*:nL1N143204

The dollar index .DXY was up 0.1 percent at 97.66 and the euro EUR= slipped 0.02 percent to $1.0986.

A Fed rate hike on Wednesday, following a two-day policy meeting, is a near certainty in the eyes of investors. It would be the first increase after nearly a decade of loose policy that began with the onset of the global financial crisis and is viewed as a first step toward normalizing monetary conditions.

Traders see an 83 percent chance the central bank will lift its targeted rate range to 0.25 percent to 0.50 percent from the current zero to 0.25 percent range, according to CME Group's FedWatch program.

But against a backdrop of weakening oil prices and stress in the high-yield bond market, the pace of future rate hikes is of key interest to investors.

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