GLOBAL MARKETS-US, European stocks rise as oil takes a pause and crypto rallies

By Sinéad Carew and Alun John

NEW YORK/LONDON, March 4 (Reuters) - U.S. equities followed Europe higher on Wednesday as oil prices steadied after their dramatic two-day rally and a surge in cryptocurrencies encouraged investors to take on risk even while they cautiously monitored the Middle East war.

The dollar fell and U.S. Treasury yields were rising for a third straight day, even as the U.S.–Iran war expanded after a U.S. submarine sank an Iranian warship off Sri Lanka, killing at least 80 people, and NATO air defences destroyed an Iranian ballistic missile fired towards Turkey.

Some assets gained support earlier from a New York Times report that operatives from Iran’s Ministry of Intelligence reached out indirectly to the CIA the day after U.S. and Israeli attacks on Iran began, with an offer to discuss terms for ending the conflict. However, Iran's ambassador to the United Nations in Geneva on Tuesday had ruled out for now any negotiations with the United States.

"Investors are seeing light at the end of the tunnel for the conflict in the Middle East and are unwinding short positions on the currencies most exposed to a sustained commodity-price shock," said Karl Schamotta, chief market strategist, at Corpay in Toronto.

On Wall Street, traders were encouraged by a dip in oil prices and a strong rally in bitcoin along with gains in the semiconductor sector and recently battered software stocks, according to Michael James, equity sales trader at Rosenblatt Securities.

"You combine all of those and it equates to a market that's feeling further emboldened," said James, adding that bitcoin's gains encouraged long-term and short-term traders to take on risk.

"The fact the stock market has rallied impressively off two gap down lows Monday and Tuesday morning, and recovered meaningfully, gave some added conviction to the bulls," James said.

In cryptocurrencies, bitcoin BTC= gained 8.35% to $73,730.86. Ethereum ETH= rose 10.58% to $2,177.18.

On Wall Street at 2:37 p.m. ET (1937 GMT) the Dow Jones Industrial Average .DJI rose 274.52 points, or 0.57%, to 48,775.79, the S&P 500 .SPX rose 64.72 points, or 0.95%, to 6,881.25 and the Nasdaq Composite .IXIC rose 350.75 points, or 1.56%, to 22,867.45.

MSCI's gauge of stocks across the globe .MIWD00000PUS rose 3.14 points, or 0.30%, to 1,032.92. Earlier, the pan-European STOXX 600 .STOXX index closed up 1.4%, erasing some of the previous day's losses.

In South Korea, the KOSPI benchmark closed down 12%, .KS11 in the index's third straight day of declines. South Korea is heavily reliant on Middle Eastern oil. .KS Also, Japan's Nikkei .N225 fell 3.6% and Taiwan stocks .TWII dropped 4.3%.

In currencies, the U.S. dollar slipped, pulling back from the multi‑month highs it touched in the previous session, as investors unwound safe‑haven positions on rising hopes that the Middle East conflict may prove shorter‑lived than initially feared.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.25% to 98.83, with the euro EUR= up 0.15% at $1.1631.

Against the Japanese yen JPY=, the dollar weakened 0.42% to 157.04. But sterling GBP= pared earlier gains versus the dollar and was last up 0.03% at $1.3358.

In government bonds, U.S. Treasury yields advanced as investors gauged the likelihood of higher inflation and the path of monetary policy as the war in Iran continues to put oil prices at risk of rising further.

The yield on benchmark U.S. 10-year notes US10YT=RR rose 1.8 basis points to 4.075%, from 4.057% late on Tuesday while the 30-year bond US30YT=RR yield rose 0.8 basis points to 4.7107%.

The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 3.3 basis points to 3.533%.

In energy markets, oil prices stalled their rally even as U.S. and Israeli strikes against Iran escalated the conflict and paralysed shipping through the Strait of Hormuz, disrupting oil shipping for a fifth day.

U.S. crude CLc1 settled up 0.13%, or 10 cents, at $74.66 a barrel and Brent LCOc1 settled at $81.40 per barrel, unchanged from Tuesday's close.

Trading in precious metals was boosted by the pause in the dollar's rally and appeared to suggest that investors were still counting on safe-haven assets because of the uncertainty brought by the war.

Spot gold XAU= rose 0.82% to $5,127.98 an ounce. U.S. gold futures GCc1 rose 0.19% to $5,117.20 an ounce. Spot silver XAG= rose 1.85% to $83.56 an ounce.