GLOBAL MARKETS-Stocks relieved at trade truce, bonds step back

* Asian stock markets : https://tmsnrt.rs/2zpUAr4
* Nikkei, Shanghai at 2-month tops as new tariffs avoided
* Treasury bonds off as market scales back bets on Fed
easing
* PMI factory surveys disappoint, from China to Japan
* Oil prices jump as OPEC looks set to extend supply cuts

By Wayne Cole
SYDNEY, July 1 (Reuters) - Stocks rallied and bonds
retreated in Asia on Monday as a thaw in the Sino-U.S. trade
dispute averted one threat to the global economy, leading
investors to pare wagers on aggressive policy easing by the
major central banks.
The dollar firmed modestly on the safe-haven yen as Treasury
yields rose and futures reined in bets for a half-point rate cut
from the U.S. Federal Reserve this month.
"The Trump-Xi G20 meeting looks to be a modest win for China
and a positive for risk assets short term, but well within the
range of expected outcomes," said Westpac economist Richard
Franulovich.
"Fed cut expectations are likely to see a sustained
trimming, though more so for their meeting on July 31 than over
the next year," he added. "A 50 basis point rate cut seems very
unlikely."
The initial reaction was one of relief that new tariffs were
avoided and Japan's Nikkei .N225 climbed 1.6% to a two-month
top. MSCI's broadest index of Asia-Pacific shares outside Japan
.MIAPJ0000PUS added 0.4%.
Chinese blue chips .CSI300 climbed 2.1% to their highest
since late April. E-Mini futures for the S&P 500 ESc1 rose
0.8% and FTSE futures FFIc1 0.5%.
Treasury futures TYc1 slid 10 ticks as yields on 10-year
notes US10YT=RR edged up 3 basis points to 2.03%.
Fed funds 0#FF: dropped over 5 ticks as the market scaled
back the probability of a half-point rate cut this month to
around 13%, from nearer 50% a week ago. FEDWATCH
The United States and China agreed on Saturday to restart
trade talks after President Donald Trump offered concessions to
his Chinese counterpart Xi Jinping when the two met at the
sidelines of the G20 summit in Japan over the weekend. These
included no new tariffs and an easing of restrictions on tech
company Huawei HWT.UL in order to reduce tensions with
Beijing.
China agreed to make unspecified new purchases of U.S. farm
products and return to the negotiating table. DONE
Still, no deadline was set for a deal and much damage has
already been done, with two surveys of Chinese manufacturing out
over the weekend showing a contraction in activity.
The official Purchasing Managers' Index (PMI) held at 49.4
in June, just missing forecasts, while the Caixin/Markit PMI
dropped to 49.4, the worst reading since January. Surveys from Japan and South Korea showed similar slowdowns.
"Although a worst case outcome has been averted, the threat
of tariffs remains and it is unlikely the truce gives much
confidence to firms' investment and hiring decisions," said
Tapas Strickland, a director of economics at NAB.
"As such, it is likely that soft manufacturing conditions
will persist until if and when a fuller agreement is fleshed
out."
The reaction in currency markets was to strip some recent
gain from safe harbours like the yen and Swiss franc. The dollar
crept up 0.2% on the yen to 108.15 JPY= and gained 0.4% on the
franc to 0.9801 CHF= .
The dollar added 0.2% on a basket of currencies to 96.355
.DXY , but was little changed on the euro at $1.1355 EUR= .
The dollar dipped 0.3% on the Chinese yuan to 6.8432 CNY= .
The dollar's gains took some of the shine off gold, which
fell 1.2% to $1,392.86 per ounce XAU= .
Oil prices sprang higher on news OPEC and its allies look
set to extend supply cuts at least until the end of 2019 as Iraq
joined top producers Saudi Arabia and Russia in endorsing the
policy. O/R
Brent crude LCOc1 futures rose $1.27 to $66.01, while U.S.
crude CLc1 gained $1.19 to $59.66 a barrel.

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(Editing by Sam Holmes & Shei Navaratnam)