* Oil soars 5 percent as producers agree output cut
* Bonds sell off, U.S. yield tops 2.5 percent as curve
* Dollar rises against yen, rouble gains on oil spike
* China shares' loss biggest in six months, gold at 10-month
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Dec 12 Oil prices surged to their
highest since mid-2015 and U.S. Treasury yields hit a more than
two-year peak on Monday after the world's top crude producers
agreed to the first joint output cut since 2001.
Coming at the start of a week when the United States is
expected to raise interest rates for the only the second time
since the global financial crisis, the weekend agreement between
the Organisation of Petroleum Exporting Countries and key
non-OPEC states set the markets alive.
Brent oil futures soared 5 percent to top $57 a
barrel for the first time since July 2015 and U.S. crude
leapt above $54 a barrel to send global inflation gauges spiking
There was particular surprise as Saudi Arabia, the world's
number one producer, said it may cut its output even more than
it had first suggested at an OPEC meeting just over a week ago.
"The original OPEC deal pointed to a fairly lumpy 3 percent
cut (in production), so this suggests there is a bit more upside
for oil prices," said Neil Williams, chief economist at fund
On the rise in bond yields, which tend to set global
borrowing costs, he added: "The Fed hike is mostly baked in so
when we do get it, it will be more about the statement."
European oil companies jumped more than 2 percent on
the oil surge and helped the pan-regional STOXX50 index
add 0.1 percent, having just had its best week in
exactly five years.
Bond markets in contrast were under heavy pressure. Euro
zone government bond yields were sharply higher with German
Bunds up 5 basis points at 0.40 percent as U.S.
yields topped 2.5 percent for the first time since
"We have seen OPEC and non-OPEC producers agreeing, which is
boosting reflation expectations around the world," said Chris
Weston, an institutional dealer with IG Markets.
In another sign of the reflation trade, breakeven rates
--the gap between yields of five-year U.S. debt and a matching
tenor in inflation-protected securities -- were at
Wall Street futures, meanwhile, pointed to the main
U.S. indexes barely budging when they resume, having enjoyed an
uninterrupted gain of nearly 4 percent over the past six
Focus was also on the currency markets as the dollar rose to
its highest since February against the Japanese yen,
before what is almost certain to be the first rate hike of the
year from the U.S. Federal Reserve on Wednesday.
Japan's yen also tends to suffer when oil prices rise, since
the country is a major importer.
The Norwegian crown, Canadian dollar and
Russia rouble were the big gainers from the oil deal. The
rouble rose almost 2 percent against both the dollar and euro as
Russia shares, which have rocketed almost 90 percent since
January, hit the latest in a string of record highs.
Overnight in Asia, MSCI's broadest index of Asia-Pacific
shares outside Japan dropped 0.5 percent after
posting its biggest weekly rise in nearly three months last
China stocks suffered their biggest fall in six months as
blue chips were knocked by fresh regulatory curbs to rein in
insurers' aggressive stock investments and rising bond yields
prompted profit-taking in equities.
The blue-chip CSI300 index fell 2.4 percent, to
3,409.18 points, while the Shanghai Composite Index lost
2.5 percent to 3,152.97 points.
China's insurance regulator, which recently warned it would
curb "barbaric" acquisitions by insurers, said late on Friday it
had suspended the insurance arm of China's Evergrande Group
from conducting stock market investment.
Concerns were also rumbling about U.S.-Sino relations after
Donald Trump re-ignited controversy over Taiwan.
"I fully understand the 'one China' policy, but I don't know
why we have to be bound by a 'one China' policy unless we make a
deal with China having to do with other things, including
trade," Trump said in an interview with Fox News.
Emerging markets are already bracing for a difficult run if
U.S. rate hikes push up the dollar and global bond yields.
Turkey's lira has borne the brunt of much of the pressure in
recent weeks, and it took another 1 percent hit alongside
a sharp fall in Turkish bonds after data showed the country's
economy suffering its first contraction since 2009.
Gold, meanwhile, which had a bumper first half of 2016, hit
its lowest level since early February at $1,152 an ounce.
(Additional reporting by Saikat Chatterjee in Hong Kong,
editing by Larry King)