GLOBAL MARKETS-Stock rally stalls, bond markets assess risks to US economy.

(Update prices)

* Euro STOXX 600 falls 0.6%

* US bond market signals economic trouble ahead

* 10-year Treasuries lower

* Earlier negotiations between Ukraine and Russia boosted shares

* Wall Street down

By Tom Wilson and Koh Gui Qing

LONDON/NEW YORK, March 30 (Reuters) – The rally in U.S. and European stocks stalled on Wednesday as investors assessed economic and geopolitical risks, while oil prices fell around $4 on the prospect of a more Russian sanctions.

The broad Euro STOXX 600 fell 0.6% after three positive sessions that took the index to levels reached before Russia invaded Ukraine.

By late morning, the Dow Jones Industrial Average was down 0.18% to 35,229.04, the S&P 500 was down 0.25% and the Nasdaq Composite was little changed.

The MSCI World Equity Index, which tracks stocks in 50 countries, was also little changed.

Relative enthusiasm among stock investors contrasted with caution in the bond market, where some investors are betting that aggressive policy tightening by the US Federal Reserve could hurt the world’s largest economy. long-term.

“I am very concerned that US equities are not pricing in any risk of a downturn in the US economy, that is extremely worrying,” said Ludovic Colin, senior portfolio manager at Swiss asset manager Vontobel.

The widely followed 2-year and 10-year US Treasury yield curve briefly inverted on Tuesday for the first time since September 2019.

Longer-term yields falling below shorter ones indicate a lack of faith in future growth, and 10-year yields fall below 2-year rates, which is seen as a harbinger of recession.

Sebastien Galy, senior macro strategist at Nordea Asset Management, said that fixed income and equity markets were diverging.

“Equity markets are too bullish and fixed income markets are probably too bearish.”

In recent decades, an inverted Treasury curve has been followed by a recession in two years, including the 2020 recession caused by the COVID-19 pandemic.

The benchmark Frankfurt and Paris indices lost 1.5% and 1.1% respectively, with London stocks rising a bit to 0.19%.

A day after rising above 0% for the first time since 2014, Germany’s two-year bond yield rose six basis points to 0.01%, keeping the previous day’s highs in sight.

Stocks rose in Asia overnight after Ukraine on Tuesday proposed adopting a neutral status, a move seen by investors as a sign of progress in face-to-face peace talks.

On the ground, however, reports of attacks continued and Ukraine reacted skeptically to Russia’s promise in negotiations to reduce military operations around kyiv.

MSCI’s broader index of Asia-Pacific stocks outside of Japan jumped 1.46% to its highest level in nearly a month, with most Asian stock markets in positive territory.

JAPAN IN FOCUS

The US benchmark 10-year yield last stood at 2.3762%, after rising as high as 2.557% on Monday to hit its highest level since April 2019 as traders positioned for rapid increases in US interest rates

The impact of rising US yields manifested itself elsewhere, dragging Japanese government bond yields in its wake in a threat to Japan’s ultra-loose monetary policy.

The Bank of Japan ramped up efforts to defend its key yield cap on Wednesday, offering to increase government bond purchases across the curve, including unscheduled emergency market operations.

The widening gap between US and Japanese yields has caused the yen to weaken considerably, but it managed to recover some lost ground on Wednesday.

The Japanese currency rose 0.9% to 121.80 per dollar, compared with Monday’s low of 124.3, amid concerns that Japanese authorities may intervene to boost the yen.

In other currency markets, the euro rose 0.6% to $1.1157, its highest level in four weeks, on the back of peace talks between Russia and Ukraine.

In energy markets, oil prices rose about $4 on tight supply and the growing prospect of new Western sanctions against Russia, even as Moscow and kyiv held peace talks.

Brent LCOc1 crude futures were up $3.96, or 3.6%, at $114.19, while US crude was up 3.66% at $108.05 a barrel.

(Reporting by Tom Wilson in London, additional reporting by Dhara Ranasinghe and Alun John in Hong Kong Editing by Bernadette Baum and Mark Potter)

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