GLOBAL MARKETS-Stocks fall, led by bank shares; oil steadies after plunge

* Fed to let leverage exemption expire on March 31
* U.S. 10-year yields near 14-month highs
* Dollar hits highest level in a week
* Oil prices rise after steep Thursday fall

(Recasts with opening of U.S. markets, adds dateline)
By Lewis Krauskopf and Carolyn Cohn
NEW YORK/LONDON, March 19 (Reuters) - A gauge of global
stocks fell on Friday as declines in U.S. bank shares weighed on
the S&P 500 after the Federal Reserve said it would let a key
leverage exemption expire, while oil prices steadied after
getting pummeled a day earlier.
Benchmark U.S. Treasury yields, which have driven market
moves broadly in recent weeks, hovered near 14-month highs while
the U.S. dollar strengthened for a second day.
Big U.S. banks will have to resume holding an extra layer of
loss-absorbing capital against U.S. Treasuries and central bank
deposits from next month after the Fed said it would not extend
a temporary waiver that had exempted those assets from a key
bank leverage rule. Stocks globally eased as investors sought the next reasons
to add risk following the passing of President Joe Biden's $1.9
trillion stimulus plan, broadening COVID-19 vaccinations and
encouraging economic news.
"We have had such a strong period of news-flow and catalysts
on the positive end that now that a lot of those have largely
been put into the market, we are now a little bit more
susceptible to negative news causing big drawdowns,” said Mark
Hackett, chief of investment research at Nationwide.
On Wall Street, the Dow Jones Industrial Average .DJI fell
180.2 points, or 0.55%, to 32,682.1, the S&P 500 .SPX lost
2.15 points, or 0.05%, to 3,913.31 and the Nasdaq Composite
.IXIC added 73.93 points, or 0.56%, to 13,190.09.
The S&P 500 banks index .SPXBK dropped 1.9%.
The pan-European STOXX 600 index .STOXX lost 0.87% and
MSCI's gauge of stocks across the globe .MIWD00000PUS shed
0.33%.
Markets have been consumed by moves in U.S. bond yields,
with investors still digesting the Fed's meeting earlier this
week. The central bank said it expects higher economic growth
and inflation in the United States this year, although it
repeated its pledge to keep its target interest rate near zero.
Benchmark 10-year notes US10YT=RR last rose 1/32 in price
to yield 1.7281%, from 1.729% late on Thursday. The 10-year
yield hit 1.754% on Thursday, its highest level since January
2020.
"Ultimately, what we're seeing now is a great deal of
tension between market prices that embed several rate hikes
before the end of 2023 and the Fed's forecast that doesn't
expect lift-off until 2024," said Ryan Swift, U.S. bond
strategist at BCA Research in Montreal.
The dollar extended gains against major currencies, hitting
its highest level in a week. The dollar index =USD rose 0.208%, with the euro EUR=
down 0.2% to $1.1891.
Oil prices gained after falling about 7% in the prior
session, when a new wave of coronavirus infections across Europe
dampened expectations of any imminent recovery in fuel demand.
U.S. crude CLc1 recently rose 0.9% to $60.54 per barrel
and Brent LCOc1 was at $63.74, up 0.73% on the day.

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