* Pressure rises on U.S. bonds
* World stocks add to recent gains
* Chinese stocks rally on relief about interest rates
* Dollar stronger, euro slips
By Jeremy Gaunt, European Investment Correspondent
LONDON, Dec 13 (Reuters) - Selling pressure on 10-year U.S.
Treasuries drove yields to fresh six-month highs on Monday as
investors threatened to undo this year's bond rally on signs of
global economic recovery and deeper U.S. deficits.
World shares climbed with gains in Japan and Europe, adding
to an end-of-year rally. Chinese shares posted their biggest
gains in two month as fears of interest rate increases
dissipated.
The dollar rose against a basket of major currencies <.DXY>,
lifted by prospects for higher returns on U.S. assets.
U.S. Treasury yields <US10YT=TWEB> were up around 4 basis
points to around than 3.367 percent, having earlier hit levels
not seen for six months. Yields -- which move inversely to
prices -- shot up as much as 20 basis points last Wednesday
alone on a combination of expectations that the U.S. economic
climate will improve and worries that proposed extensions of tax
cuts will bloat the fiscal deficit further.
Investors have also begun reappraising the likelihood of
further bond-buying by the U.S. Federal Reserve after its
current $600 billion quantitative easing programme is completed.
Monday's selling had some impact on short-term U.S. paper,
suggesting investors may begin pricing in raised expectations of
higher interest rates next year.
"If the market really thinks there will be a rate hike
within a year, then the two-year yield could rise near 1
percent," said Tomoaki Shishido, a fixed-income analyst at
Nomura Securities in Tokyo, adding that he did not believe there
would be such as rate rise.
The two-year note <US2YT=TWEB> was yielding 0.66 percent, up
a basis point and off its highs.
Wariness about holding low-yielding government debt had
little impact on European paper, where the 10-year German Bund
<DE10YT=TWEB> yield was flat.
FX AND STOCKS
European bond trading is complicated by the euro zone debt
crisis, which will be the main subject later in the week at an
EU summit seeking some way of stabilising pressure on the debt
of the currency bloc's weaker economies.
The euro was again a victim of the concern, falling 0.1
percent to just above $1.32 (EUR=>. The shared currency has come
under additional pressure from expectations that U.S. assets
will yield higher returns.
Currency speculators trimmed short positions against the
dollar last week but more than doubled their bets against the
euro, according to data from the Commodity Futures Trading
Commission, signalling growing bearishness on the currency.
[]
On stock markets, meanwhile, investors were cautiously
building up gains before the Christmas/New Year break.
MSCI's all-country world stock index was up 0.2 percent for
a more than 8 percent year-to-date gain. <.MIWD00000PUS>
"Market sentiment is bullish because of strong economic
data and some positive policy announcements in the United States
in the past weeks," said Koen De Leus, strategist at KBC
Securities, in Brussels.
Europe's FTSEurofirst 300 <> gained 0.4 percent and
Japan's Nikkei <> closed up 0.8 percent.
China's key stock index <> closed up 2.9 percent on
relief that the central bank raised lenders' reserve
requirements last week instead of benchmark interest rates to
curb inflation.
The market had been worried about a rise in interest rates,
thus the increase in bank reserve requirement ratios (RRR) late
on Friday was greeted with more active buying.
(Additional reporting by Atul Prakash; Editing by John
Stonestreet/Ruth Pitchford)
