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

• Wall Street stocks follow gain in European shares
• South Korea stocks tumble; Japan, Taiwan also slip
• Gold rebounds after Tuesday's slump
• Oil futures pause runaway rally
• US crude barely gains, Brent edges down

NEW YORK/LONDON, March 4 (Reuters) - U.S. and European equities rose on Wednesday as oil prices took a breather after their dramatic two-day rally and a surge in cryptocurrencies encouraged investors to take on risk while cautiously monitoring the Middle East war.

The dollar fell and U.S. Treasury yields rose 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. Also, NATO air defences destroyed an Iranian ballistic missile fired towards Turkey.

In early trading, some assets gained support after the New York Times reported 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. On Tuesday Iran's ambassador to the United Nations in Geneva ruled out for now any negotiations with the U.S.

"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.

U.S. stock traders were encouraged by a dip in oil prices and a 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.

"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= rallied 7.64% to $73,245.38. Ethereum ETH= rose 9.23% to $2,150.48.

On Wall Street, the Dow Jones Industrial Average .DJI rose 238.14 points, or 0.49%, to 48,739.41, the S&P 500 .SPX rose 52.87 points, or 0.78%, to 6,869.50 and the Nasdaq Composite .IXIC rose 290.79 points, or 1.29%, to 22,807.48.

MSCI's gauge of stocks across the globe .MIWD00000PUS rose 1.81 points, or 0.18%, to 1,031.59. Earlier, the pan-European STOXX 600 .STOXX index closed up 1.4%, erasing some of Tuesday's losses.

In Asia, South Korea's KOSPI benchmark closed down 12%, .KS11 its third straight daily decline. South Korea relies heavily on Middle Eastern oil. .KS Japan's Nikkei .N225 fell 3.6% and Taiwan stocks .TWII dropped 4.3%.

In currencies, the U.S. dollar eased off the previous session's multi‑month highs, as investors unwound safe‑haven positions on rising hopes for a shorter the Middle East.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and euro, fell 0.31% to 98.77. The euro EUR= rose 0.22% to $1.1638. Against the Japanese yen JPY=, the dollar weakened 0.43% to 157.03 while sterling GBP= pared gains and was last up 0.16% at $1.3375.

U.S. Treasury yields advanced as investors gauged the likely path of monetary policy after the war in Iran pushed up oil prices.

"The things that we would watch for are if rates move lower, it's probably not a positive perspective for the broad economy. If they move materially higher, it's likely an unanchoring of inflation expectations based on things that are happening in the hydrocarbon market," said Bill Northey, senior investment director at U.S. Bank Wealth Management.

The yield on benchmark U.S. 10-year notes US10YT=RR rose 4.1 basis points from late Tuesday to 4.098%. The 30-year bond US30YT=RR yield rose 2.9 basis points to 4.7322%.

The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 5.1 basis points to 3.551%.

The rally in oil prices stalled even as the escalating conflict 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 unchanged at $81.40 per barrel.

Trading in precious metals was boosted by the dollar's decline and a search for other safe-haven assets during the war.

Spot gold XAU= rose 0.99% to $5,136.91 an ounce after falling 4.5% on Tuesday. Spot silver XAG= rose 1.65% to $83.39 an ounce after falling in the two last sessions.