June 27, 2017 / 3:56 PM / 6 months ago

GLOBAL MARKETS-Euro rallies, weak dollar lifts oil

(Updates throughout, changes comments, byline, dateline from previous LONDON)

* U.S. yields rise with European debt after upbeat Draghi comments

* ECB’s Draghi sends euro rallying; Fed’s Yellen awaited

* Oil prices up on weaker dollar, but supply glut caps gain

By Rodrigo Campos

NEW YORK, June 27 (Reuters) - The euro rallied against the U.S. dollar on Tuesday after European Central Bank President Mario Draghi fueled market expectations the ECB will reduce stimulus later this year, while the dollar’s weakness helped lift crude prices.

Energy and bank sector stocks rose on Wall Street, leaving the S&P 500 and a global equities index little changed on the day.

The euro hit its highest since early September versus the greenback at $1.1304 as Draghi, speaking to a conference in Portugal, said the ECB could adjust its policy tools as economic prospects improve in Europe.

“Just the fact that the ECB is considering their options right now is considered to be a hawkish signal,” said Sireen Harajli, FX strategist at Mizuho in New York.

The dollar index fell 0.7 percent, with the euro up 1.03 percent to $1.1294.

But the Japanese yen weakened 0.52 percent versus the greenback at 112.44 per dollar.

Sterling was last trading at $1.278, up 0.47 percent on the day. The Bank of England raised banks’ capital requirements and warned about levels of credit growth in pockets of the economy.

Federal Reserve Chair Janet Yellen is scheduled to take part in a discussion in London at 1:00 p.m. ET (1700 UTC). If her comments support the Fed’s forecast of further monetary policy tightening this year, the dollar could bounce back.

“Her words will be scrutinized for any color about the timing of the next rate hike against a backdrop of mounting concerns over the inflation outlook,” strategists at Societe Generale said in a note to clients.

Also due to speak on Tuesday was Fed Vice Chair Stanley Fischer.

The dollar weakness helped boost crude futures prices, though the backdrop of a long-standing supply glut kept gains in check.

U.S. crude rose 2.21 percent to $44.34 per barrel and Brent was last at $46.90, up 2.33 percent on the day.

Ian Taylor, head of the world’s largest independent oil trader Vitol, told Reuters that Brent prices would stay in a range of $40-$55 a barrel for the next few quarters.

“In the third quarter we should draw (down stocks), but we are unsure about the fourth quarter as U.S. production is likely to have a year-end spurt,” Taylor said.

On Wall Street, energy stocks tracked the price of oil higher while banks also helped keep the S&P 500 afloat.

The Dow Jones Industrial Average rose 25.3 points, or 0.12 percent, to 21,434.85, the S&P 500 gained 0.65 points, or 0.03 percent, to 2,439.72 and the Nasdaq Composite dropped 19.60 points, or 0.31 percent, to 6,227.55.

The pan-European FTSEurofirst 300 index lost 0.70 percent and MSCI’s gauge of stocks across the globe shed 0.02 percent.

Emerging market stocks lost 0.17 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.14 percent lower, while Japan’s Nikkei rose 0.36 percent.

U.S. Treasury yields rose in sympathy with European government debt weakness, after Draghi’s comments.

“He surprised the market with that upbeat stance,” said Tom di Galoma, a managing director at Seaport Global in New York. “The European government bond market didn’t take it very well.”

Benchmark 10-year notes last fell 19/32 in price to yield 2.2016 percent, from 2.137 percent late on Monday.

The Treasury yield curve continued to flatten, with the spread between five-year notes and 30-year bonds dropping to a low of 92.7 basis points. That was the flattest level since late 2007.

In corporate news, the EU slapped a record 2.42 billion euro fine on Alphabet’s Google saying it had abused its dominant market position. Google said it was considering an appeal. Alphabet shares fell 1.1 percent.

Gold prices, which tumbled to their lowest level in nearly six weeks on Monday, were supported by the softer dollar.

Spot gold added 0.2 percent to $1,246.35 an ounce. U.S. gold futures gained 0.09 percent to $1,247.50 an ounce.

Copper rose 1.10 percent to $5,858.00 a tonne.

Reporting by Rodrigo Campos, additional reporting by Tanya Agrawal in Bengaluru, Vikram Subhedar and Julia Payne in London and Sam Forgione and Karen Brettell in New York; Editing by Nick Zieminski

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