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GLOBAL MARKETS-Oil soars on OPEC hopes, dollar muscles higher

Published 01/12/2016, 12:58 am
Updated 01/12/2016, 01:10 am
© Reuters.  GLOBAL MARKETS-Oil soars on OPEC hopes, dollar muscles higher
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* Oil soars amid signals of OPEC production cut

* Dollar gains after stellar November

* European oil stocks rise, banks struggle

* Gold heads for biggest monthly fall since mid 2013

* Graphic: World FX rates in 2016 http://tmsnrt.rs/2egbfVh

By Marc Jones

LONDON, Nov 30 (Reuters) - Oil jumped more than 8 percent and the dollar, U.S. bond yields and stocks all pushed higher on Wednesday as signals from OPEC suggested the group was closing in on a deal to cut production.

Combined with fresh concern about China's banking system, a stress test for British banks and a raft of euro zone data, the OPEC meeting topped off a wild November for financial markets that has been dominated by Donald Trump's victory in the U.S. presidential election.

An OPEC source told Reuters an agreement had been reached in line with an preliminary deal agreed in Algiers in September, to cut the groups output ceiling to 32.5 million barrels per day from 33.6 million now.

Brent oil CLc1 was just starting to level off, having surged above $50 a barrel after OPEC's secretary general said earlier a deal would be agreed as he headed into a meeting of the group in Vienna O/R

Top oil producer Saudi Arabia said a deal was close despite some loose ends. Iran, which is considered crucial to a breakthrough because its output has been rising after western sanctions were lifted, said it was also "optimistic".

"I think we are looking at a very positive meeting," added UAE Energy Minister Suhail bin Mohammed al-Mazroui, who was echoed by counterparts from Angola, Algeria and Nigeria.

A possible rise in oil prices has also been feeding expectations for a rebound in global inflation. Those expectations have been gathering momentum since Trump promised $1 trillion of new spending on U.S. infrastructure has meant an electrifying run for the dollar, which was up at 1.0645 per euro EUR= and 113.04 yen JPY= as U.S. trading began and as it headed for its strongest month against the Japanese currency in seven years. FRX/

Bumper U.S. jobs data meant Wall Street was set to start higher .N while U.S. Treasury yields US10YT=RR -- the benchmark for global borrowing costs -- were also rising after a two-day pause. They hovered just under 2.36 percent, having started November at just over 1.8 percent. The climb is the biggest monthly move since December 2009.

"There have been more optimistic noises (about OPEC deal) this morning and through into the afternoon session (here), and those hopes of a deal also encouraged U.S. yields to rise," said Jeremy Stretch, head of currency strategy for CIBC Global Markets in London.

European stocks were lifted by a jump in oil companies .SXEP amid the OPEC talk, although banks struggled as Royal Bank of Scotland RBS.L failed a Bank of England stress test and Italian lenders fell before a referendum on the country's political system on Sunday. .EU

Worries about China's financial sector had also spread in Asia overnight. Shanghai stocks fell about 1 percent amid concern about government moves to stem capital flight and halt the recent sharp fall in the yuan stress could continue for a while," said Gu Weiyong, chief investment officer at hedge fund Ucom Investment Co. "Whether the situation gets better depends on the willingness of the central bank to inject more liquidity into the system."

NOVEMBER REIGN

Emerging stocks .MSCIEF rose marginally but were headed for their biggest monthly fall since January. Currencies hit by the latest onslaught from the dollar were also set to close November with hefty losses EMRG/FRX .

The Turkish lira TRY= and Mexican peso MXN= have lost around 8 to 9 percent versus the dollar for their biggest monthly declines since 2008 and 2012 respectively.

And it is not only riskier assets that have suffered. Gold XAU= is on track for its biggest monthly decline since mid 2013, largely pressured by the bets of a series of U.S. interest rate hikes over the next year.

The euro EUR= has fallen over 3 percent. Euro zone inflation for November came in at 0.6 percent year-on-year on Wednesday. That was its highest in two years, although still well below the European Central Bank's preferred level of just under 2 percent ECB meets next week, and with expectations that the bank will extend its stimulus programme, already at more than 1.5 trillion euros, euro zone government bond yields nudged lower on Wednesday GVD/EUR .

A Reuters report that the ECB was ready to temporarily step up purchases of Italian government bonds if its borrowing costs spiked was also a driver. reaction function does indicate that the ECB is aware of the important support that quantitative easing lends to the (euro zone) periphery," ING strategist Padhraic Garvey said.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the Macro Scope Blog click on http://blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)

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