* World stocks steady after selloff
* Oil off highs as Iran strike against U.S. seen unlikely
* European stocks rise 0.6%
* MSCI world index 0.4% away from all-time high
By Thyagaraju Adinarayan
LONDON, Jan 7 (Reuters) - World shares steadied and oil
pulled back from multi-month highs on Tuesday after dramatic
post-new year moves, as investors judged prospects of an all-out
conflict between the United States and Iran had eased.
After a strong rally, oil gave back some of its gains amid
signs that Iran would be unlikely to strike against the U.S. in
a way that would disrupt supplies. O/R
Brent crude LCOc1 futures fell 49 cents to $68.42 a
barrel, having been as high as $70.74 on Monday, while U.S.
crude CLc1 dropped 42 cents to $62.85.
European equities .STOXX meanwhile rose 0.7%, tracking
similar gains in Asia. MSCI's broadest index of Asia-Pacific
shares outside Japan .MIAPJ0000PUS recouped almost all of
Monday's losses.
Stock futures for the S&P 500 ESc1 firmed 0.2%.
"Geopolitical risk has always felt much worse for markets in
the heat of the moment than it does in hindsight, but it's
always possible that the next one will bring us into a different
era," Deutsche Bank strategist Jim Reid said.
Risky assets started 2020 on the back foot as Tehran and
Washington traded threats after a U.S. air strike on Baghdad
airport killed a top Iranian commander.
On Monday the mood began to calm, helping U.S. shares
recover ground. The Dow .DJI rose 0.24%, the S&P 500 .SPX
0.35% and the Nasdaq .IXIC 0.56%.
SAFETY PLAYS OUT OF FAVOUR
On Tuesday emerging markets, which had been hardest hit,
bounced back, with stocks .MSCIEF rising 0.4%.
With those gains, the MSCI world equity index
.MIWD00000PUS , which tracks shares in 49 countries, was 0.4%
away from a record high.
"Markets got a lift from the lack of follow-through (after
the air strike) as yesterday progressed, and by the end of the
session had actually staged a reasonable recovery," Reid added.
Safety plays were out of favour, with gold XAU= retreating
to $1,569.41 an ounce, after scaling a near seven-year peak
overnight. Euro zone government bond yields edged up from around
three-week lows.
The calmer mood also saw the yen lose much of its safe-haven
gains, with the dollar bouncing to 108.48 yen JPY= from a low
of 107.75 hit on Monday.
Against a basket of currencies, the dollar drifted off to
97.661 .DXY but stayed well above a recent six-month trough of
96.355.
The euro edged up to $1.1192 EUR= , but faces stiff chart
resistance around $1.1240, while sterling made gains to $1.3196
GBP= on better UK economic data.
Surveys of service sectors overnight showed an improvement
in the United States, UK and EU, suggesting the ISM measure of
U.S. services due on Tuesday might also show strength.
"We think the longest U.S. expansion on record still has
plenty of legs," said Tom Porcelli, chief U.S. economist at RBC
Capital Markets. "To be sure, Iran adds an additional layer of
complexity."
"But while the risk of conflict has increased, the reality
is this is likely to be limited to proxy skirmishes," he said.
"The risk of a "hot" conflict seems low as Iran is unlikely to
respond in such a way that risks a significant escalation from
the United States."
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