GLOBAL MARKETS-U.S. Treasury yields ease from peaks, oil prices rebound

* Wall St mixed as bank shares drop
* Fed to let leverage exemption expire on March 31
* Dollar hits highest level in a week
* Oil prices rise 2% after steep Thursday fall

(New throughout, updates prices, market activity and comments
to close of U.S. markets)
By Lewis Krauskopf and Carolyn Cohn
NEW YORK/LONDON, March 19 (Reuters) - Benchmark U.S.
Treasury yields edged back from the highest in more than a year
on Friday, as investors digested the Federal Reserve's move not
to extend a temporary pandemic regulatory break expiring this
month, and oil prices rebounded from severe slides.
Wall Street's main stock indexes ended mixed as bank shares
fell after the Fed said it would not extend a temporary capital
buffer relief put in place to ease pandemic-driven stress in the
funding market. The pan-European STOXX 600 index .STOXX lost 0.76% after
France imposed fresh regional lockdowns to curb the spread of
the coronavirus. MSCI's gauge of stocks across the globe .MIWD00000PUS shed
0.29%. Investors were seeking the next reasons to add risk
following the passing of President Joe Biden's $1.9 trillion
stimulus plan, broadening U.S. 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
234.33 points, or 0.71%, to 32,627.97, the S&P 500 .SPX lost
2.36 points, or 0.06%, to 3,913.1 and the Nasdaq Composite
.IXIC added 99.07 points, or 0.76%, to 13,215.24.
The S&P 500 banks index .SPXBK dropped 1.6%.
Markets have been consumed by the surge 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.
U.S. Treasury yields eased, while the shortest end of the
market flirted with negative rate territory as it tried to
absorb a flood of cash from massive fiscal stimulus.
Benchmark 10-year notes US10YT=RR last rose 1/32 in price
to yield 1.7264%, from 1.729% late on Thursday, a session when
the 10-year yield hit 1.754%, its highest since January 2020.
The 30-year bond yield also retreated after reaching 2.518% on
Thursday, its highest since August 2019.
"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 and hit
its highest level in over a week. The dollar index =USD rose 0.135%, with the euro EUR=
down 0.1% to $1.1903.
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 settled up $1.42, or 2.4%, at $61.42 a
barrel, while benchmark Brent LCOc1 settled at $64.53 a
barrel, up $1.25, or about 2%.

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