GLOBAL MARKETS-Stocks surge, oil dives below $100 as Iran ceasefire sparks relief rally

By Sinéad Carew and Iain Withers

NEW YORK/LONDON/SINGAPORE, April 8 (Reuters) - Oil futures sank below $100 a barrel while equity and bond prices rallied sharply on Wednesday after the United States and Iran agreed on a two-week ceasefire, prompting hopes for a resumption of oil and gas flows through the Strait of Hormuz.

U.S. President Donald Trump announced the ceasefire, which was brokered by Pakistan, less than two hours before his deadline for Iran to reopen the Strait, through which about a fifth of global oil and liquefied natural gas is shipped, or face devastating attacks on its civilian infrastructure.

Iran said it would cease counterattacks and provide safe passage through the waterway if attacks against it stop.

However, Israel carried out its heaviest strikes on Lebanon since the conflict with Hezbollah broke out last month, even as the Iran-aligned group paused attacks on northern Israel and Israeli troops in Lebanon under the U.S.-Iran ceasefire.

Also, Iran attacked Saudi Arabia's East-West Pipeline just hours after the ceasefire was agreed, hitting its only crude oil export route since hostilities began, Reuters reported citing an industry source.

Shipping sources told Reuters the Iranian navy threatened with destruction ships attempting to pass through the Strait of Hormuz without Tehran's permission. Transit through the waterway remained shut, several sources said.

Still, investors, who had moved to the sidelines on Tuesday ahead of Trump's deadline, pushed Wall Street equities to nearly one-month highs on Wednesday while the U.S. dollar slipped.

Treasury yields tumbled as investors bet that sliding oil prices could keep inflation in check and increase the probability of Federal Reserve rate cuts.

"Today's market rally is a classic geopolitical relief trade because oil is collapsing and some of the tail risks are coming off the table for now," said Gene Goldman, chief investment officer at Cetera Investment Management.

"The market is quickly repricing away from a global energy shock. Today's move is being amplified. There's a lot of short covering taking place, a lot of systematic buying, turning what should be a modest equity bounce into a strong rally."

He noted, however, that "there's still uncertainty about the ceasefire, which is only two weeks, and there's contradictions around what the Trump administration has said and what the Iranians have said about the Strait of Hormuz."

In U.S. equities, at 10:56 a.m. ET (1456 GMT) the Dow Jones Industrial Average .DJI rose 1,017.69 points, or 2.19%, to 47,605.54, the S&P 500 .SPX rose 126.99 points, or 1.92%, to 6,744.40 and the Nasdaq Composite .IXIC rose 499.60 points, or 2.29%, to 22,522.33.

MSCI's gauge of stocks across the globe .MIWD00000PUS rose 28.73 points, or 2.88%, to 1,026.82 and the pan-European STOXX 600 .STOXX index rose 3.61%.

In energy markets, U.S. crude CLc1 fell 14.92% to $96.15 a barrel and Brent LCOc1 fell to $95.08 per barrel, down 12.99% on the day; both were still well above pre-war levels.

In Treasuries, the yield on benchmark U.S. 10-year notes US10YT=RR fell 7.2 basis points to 4.271%, from 4.343% late on Tuesday while the 30-year bond US30YT=RR yield fell 6.1 basis points to 4.8603%.

The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 6.8 basis points to 3.769%.

Earlier, Euro zone government bond yields also dropped sharply, as the ceasefire prompted traders to dramatically scale back their bets on future rate hikes from the European Central Bank.

In currencies, the dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.13% to 98.80, with the euro EUR= up 0.85% at $1.1691.

Against the Japanese yen JPY=, the dollar weakened 0.78% to 158.36.

In precious metals, gold touched a nearly three-week peak after the U.S./Iran agreement.

Spot gold XAU= rose 0.82% to $4,740.92 an ounce while spot silver XAG= rose 2.7% to $74.90 an ounce.