* MSCI world equity index down 0.3 pct at 343.34
* 10-year U.S., UK yields at multi-month peak
* Euro briefly falls on Weber report
By Isabel Coles
LONDON, Feb 9 (Reuters) - U.S. and UK benchmark bond yields
hit multi-month highs and the dollar rose against the yen and
Swiss franc on Wednesday as investor focus turned to inflation,
while world stocks pulled back from a 29-month high.
The euro <EUR=> briefly fell against the dollar after
sources said Bundesbank chief Axel Weber will not be a candidate
to replace Jean-Claude Trichet as European Central Bank
president. []
U.S. Treasury yields climbed as high as 3.77 percent
<US10YT=RR> -- their highest since late April -- while the yield
on 10-year British government bonds <GB10YT=RR> hit its highest
since May 2010.
China's interest rate rise on Tuesday, its second in just
over six weeks, has prompted investors to consolidate their
positions after a 4 percent rally in the benchmark world equity
index since the start of the year.
But investors remained confident China's proactive but
gradual stance in its inflation battle will not derail the
global recovery and improving economic conditions in developed
economies would lead to higher interest rates at some point.
"The main reason rates are not being hiked and quantitative
easing continues is because of the miserable state of the U.S.
jobs market," RIA Capital rate strategist Harald Eggerstendt
said.
"If that improves over time, then policies will change and
rates will go up and so the (debt) market sold off."
The dollar rose 0.3 percent to 82.58 yen <JPY=> while it hit
a 2-1/2 week high of 0.9660 Swiss francs <CHF=>. The euro stood
at $1.3643 <EUR=>, slightly higher on the day.
The MSCI world equity index <.MIWD00000PUS> fell 0.3
percent, having hit a 29-month peak on Tuesday, while the
Thomson Reuters global stock index <.TRXFLDGLPU> was down a
quarter percent.
The FTSEurofirst 300 index <> was down 0.1 percent.
Wall Street looked set to open lower, with U.S. stock
futures <SPc1> down 0.3 percent. Emerging stocks <.MSCIEF> shed
around 1.2 percent, while Shanghai shares <> dropped 0.9
percent.
Bund futures <FGBLc1> were down 25 ticks on the day.
RISING YIELDS
The yield on 10-year British government bonds <GB10YT=RR>
rose as high as 3.915 percent, its highest since May 2010.
Higher energy and commodity prices are putting upward
pressure on inflation and yields, especially in the United
States and Britain.
The Bank of England's monetary policy decision comes on
Thursday. Money markets are pricing in a small risk of a rate
rise this week and pricing in a full quarter-point hike by May.
U.S. crude oil <CLc1> rose 0.5 percent to $87.38 a barrel
while London crude prices <LCOc1> jumped above $100 due to
tighter North Sea supplies.
Investors are focusing on an address by Federal Reserve
Chairman Ben Bernanke later on Wednesday, when he may give clues
on the outlook for U.S. interest rates. Bernanke said last week
the U.S. economy still needs the Fed's help -- a stance many
traders expect him to repeat.
(Editing by Stephen Nisbet)
