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Benchmark 10-year Treasury yields fall

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US stock markets closed for President Jimmy Carter funeral

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Oil prices settles up 1%

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European stocks recover early losses

(Updates prices throughout, adds oil settlement)

By Chibuike Oguh and Nell Mackenzie

NEW YORK/LONDON, Jan 9 (Reuters) - U.S. Treasury yields

retreated from an eight-month high on Thursday while the dollar

strengthened against major currencies, as investors reevaluated

the Federal Reserve's interest rate policy for 2025 as the U.S.

economy shows signs of resilience.

The benchmark 10-year U.S. Treasury yield fell

0.45 basis points to 4.689%. It had hit a peak of 4.73% on

Wednesday, the highest since April 2024. The pound headed for

its biggest three-day drop in nearly two years.

A selloff in global bonds in recent weeks and worries about

Britain's economy has kept the pound under pressure and also has

hit gilts especially hard, driving yields to 16-1/2-year highs.

On Friday, the closely watched U.S. monthly payrolls report

will provide clues on the Fed's policy outlook. Markets are

fully pricing in just one 25-basis-point U.S. rate cut in 2025.

"Yields have come down a little bit heading into the payroll

number on Friday and it's indicative of where the level of

concern is, which is that maybe the move in yields has been

overdone," said Drew Matus, chief market strategist at MetLife

Investment Management in New Jersey.

Minutes of the Fed's December policy meeting released on

Wednesday showed officials were concerned President-elect Donald

Trump's proposed tariffs and immigration policies may prolong

the fight against inflation.

A market selloff in Treasuries continued on Wednesday after

a CNN report that Trump was considering declaring a national

economic emergency to provide a legal justification for a series

of universal levies on allies and adversaries.

U.S. stock markets were closed on Thursday to mark the

funeral of former U.S. president Jimmy Carter. U.S. bond markets

closed early at 2 p.m. ET (1900 GMT).

"I put the fair value 10-year yield at 4.50% and yet we're

still at 4.66% heading into a report that will either show

continuing strength in the labor market, in which case the rate

cuts aren't the right thing to be doing, or show labor weakness

and will ratify the Fed's view of the world against the backdrop

of inflation that remains elevated and a high degree of

uncertainty in policy and economic outcomes," Matus said.

European shares finished higher after paring early losses.

Gains in healthcare and basic materials stocks were partially

offset by declines in retailers. The pan-European STOXX 600

closed up 0.42%.

The U.S. dollar index traded just under 109.54, a level it

hit last week for the first time since November 2022. The dollar

index, which measures the greenback against a basket of

currencies including the yen and the euro, rose 0.12% to 109.15,

with the euro down 0.18% at $1.0299.

Sterling was last down 0.44% at $1.2307, having

touched its lowest since November 2023 earlier in the day.

China's yuan steadied near a 16-month low against the dollar

as the nation's central bank announced a record amount of

offshore yuan bill sales to support the currency.

Oil prices settled up more than 1% as cold weather gripped

parts of the U.S. and Europe, boosting winter fuel demand.

Brent crude futures settled up 1% at $76.92 a

barrel. U.S. West Texas Intermediate crude futures

settled up 0.82% to $73.92.

Gold prices advanced to a near four-week high, backed

by safe-haven demand. Spot gold rose 0.27% to $2,669.38

an ounce, trading near its highest level since mid-December.

U.S. gold futures rose 0.77% to $2,685.00 an ounce.