* Fed to let leverage exemption expire on March 31
* Wall St mixed as tech gains offset bank share losses
* Dollar hits highest level in a week
* Oil prices rise over 2% after steep Thursday fall (Updates with U.S. afternoon trading, adds file photos for media clients)
By Lewis Krauskopf and Carolyn Cohn
NEW YORK/LONDON, March 19 (Reuters) - Benchmark U.S. bond yields edged back from 14-month highs on Friday as investors digested the Federal Reserve's move to let a key leverage exemption expire, while oil prices rebounded after getting pummeled a day earlier.
Wall Street's main indexes were mixed in afternoon trading as gains in U.S. tech and growth stocks countered declines in bank shares after the Fed said it would not extend a temporary pandemic regulatory break due to expire this month. pan-European STOXX 600 index .STOXX lost 0.76% after France imposed fresh regional lockdowns to curb the spread of the coronavirus. gauge of stocks across the globe .MIWD00000PUS shed 0.10%. Investors were seeking the next reasons to add risk following the passing of President Joe Biden's $1.9 trillion stimulus plan, broadening U.S. COVID-19 vaccinations and encouraging economic news.
"We have had such a strong period of news-flow and catalysts on the positive end that now that a lot of those have largely been put into the market, we are now a little bit more susceptible to negative news causing big drawdowns,” said Mark Hackett, chief of investment research at Nationwide.
On Wall Street, the Dow Jones Industrial Average .DJI fell 130.45 points, or 0.4%, to 32,731.85, the S&P 500 .SPX gained 8.43 points, or 0.22%, to 3,923.89 and the Nasdaq Composite .IXIC added 120.77 points, or 0.92%, to 13,236.94.
The S&P 500 banks index .SPXBK dropped 1.5%.
Markets have been consumed by moves in U.S. bond yields, with investors still digesting the Fed's meeting earlier this week. The central bank said it expects higher economic growth and inflation in the United States this year, although it repeated its pledge to keep its target interest rate near zero. 10-year notes US10YT=RR last rose 3/32 in price to yield 1.721%, from 1.729% late on Thursday. The 10-year yield hit 1.754% on Thursday, its highest level since January 2020.
"Ultimately, what we're seeing now is a great deal of tension between market prices that embed several rate hikes before the end of 2023 and the Fed's forecast that doesn't expect lift-off until 2024," said Ryan Swift, U.S. bond strategist at BCA Research in Montreal.
The dollar extended gains against major currencies, hitting its highest level in a week. dollar index =USD rose 0.093%, with the euro EUR= down 0.08% to $1.1905.
Oil prices gained after falling about 7% in the prior session, when a new wave of coronavirus infections across Europe dampened expectations of any imminent recovery in fuel demand. crude CLc1 recently rose 2.58% to $61.55 per barrel and Brent LCOc1 was at $64.74, up 2.31% on the day.
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