GLOBAL MARKETS-Caution returns as glimmer of relief over Iran war fades, oil rebounds

By Amanda Cooper and Dhara Ranasinghe

LONDON, March 24 (Reuters) - World stocks eked out modest gains, while oil prices held above $100 a barrel on Tuesday, with caution setting in a day after U.S. President Donald Trump delayed the bombing of Iran's power grid.

U.S. Treasury yields pushed higher and the dollar regained lost ground, in a retracement of the rally that swept markets overnight after Trump added five days to his Saturday ultimatum for Iran to reopen the Strait of Hormuz within 48 hours, citing "productive" talks Tehran.

Iran launched waves of missiles at Israel on Tuesday, keeping markets on edge. Oil was last trading at around $101.5 a barrel LCOc1, after falling by as much as 15% on Monday.

"Markets are balancing fragile optimism about a potential truce against the reality of persistent conflict and tightening financial conditions," said Bob Savage, head of markets macro strategy at BNY.

U.S. stock futures were just a touch lower on the day ESc1, NQc1, suggesting a slight pull back after Monday's strong gains.

Europe's STOXX 600 .STOXX was up just 0.1%, reversing earlier gains, while shares in Asia ended firmly in the green, although below the day's highs.

This left MSCI's World Stock Index .MIWD00000PUS 0.3% higher on the day, but holding roughly 7% below record highs hit in February.

With the war raging and shipments of about one-fifth of the world's oil and liquefied natural gas through the Strait of Hormuz still curtailed, oil prices were expected to stay high.

Euro zone private sector growth nearly stalled this month as inflation expectations surged and delivery times soared, adding to mounting evidence that the bloc is already suffering a tangible drag from the U.S. and Israeli war with Iran, data released on Tuesday showed.

"The war has resulted in lasting damage to infrastructure, so even if it's over soon energy prices may well remain higher - and bond and equity prices lower - for longer than they otherwise would have been," said Thomas Mathews, head of markets for Asia-Pacific at Capital Economics.

YIELDS RISE, DOLLAR PARES LOSSES

U.S. Treasury yields rose on Tuesday after a sharp fall overnight, as little clarity over an end to the conflict left traders pricing in a more hawkish global interest-rate outlook.

The two-year yield US2YT=RR was last up around 4 basis points on the day at 3.88%, while the benchmark 10-year yield US10YT=RR was up 3 bps at 4.36%.

The inflationary pulse from energy has seen investors abandon hope for further monetary easing globally and swing to pricing in rate hikes across most developed nations.

The U.S. Federal Reserve 0#USDIRPR is seen leaving rates on hold this year, with futures pointing to a small chance of a hike, while traders price in rate hikes from the Bank of England 0#GBPIRPR and European Central Bank 0#EURIRPR.

"Unless the Strait (of Hormuz) is reopened very quickly, we are still more likely than not to see higher interest rates and a meaningful increase in oil importers' costs in the coming weeks," said Kit Juckes, head of FX strategy at Societe Generale.

The dollar, rebounded from Monday's lows, leaving the euro down almost 0.2% at $1.1594 EUR=. Sterling GBP= slipped 0.3% to $1.34.

In precious metals, spot gold XAU= steadied around $4,400 an ounce. Before Trump's announcement on Monday, it had traded at four-month lows below $4,100, on expectations of higher-for-longer U.S. rates. GOL/