*

UK bond yields hit new highs

*

Analysts point to Trump uncertainty for bond rout

*

European stocks recover early losses, US stock markets

closed

By Nell Mackenzie

LONDON, Jan 9 (Reuters) - Government bonds remained

under pressure on Thursday and the dollar held steady near its

highest levels in more than a year as European stocks reversed

early losses.

The pound headed for its biggest three-day drop in nearly

two years, under pressure from a selloff in global bonds that

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

highs, as concern mounts about Britain's finances.

Sterling was last down 0.5% at $1.230, having

touched its lowest since November 2023 earlier in the day.

Concern about rising inflation, reduced chances of a drop in

interest rates, uncertainty over how U.S. president-elect Donald

Trump will conduct foreign or economic policy, and the prospect

of trillions of dollars in extra debt sales have sent bond

yields soaring around the world this week.

This took European stocks lower at the open but

they reversed to trade up 0.36% as of 1315 GMT.

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

to 4.6526% from an overnight peak of 4.73%, which was the

highest level since April 2024.

"This rout is not a UK but a global phenomenon. Sovereign

debt is the elephant in the room. Will the UK achieve the growth

we'd all like to see? The markets are not convinced," said Russ

Mould, investment director of AJ Bell in London.

The U.S. dollar index, which gauges the currency

against sterling, the euro and four other major peers, edged up

to 109.09, sitting not too far from the highest level since

November 2022 of 109.54, reached a week ago.

PRESSURE POINTS

The latest boost for the dollar and U.S. Treasury yields

follows recent signs of resilience in the U.S. economy and

inflation, which prompted markets to reduce expectations for

Federal Reserve rate cuts this year.

Minutes of the Fed's December policy meeting, released on

Wednesday, showed officials were concerned that Trump's proposed

tariffs and immigration policies may prolong the fight against

inflation.

Selling in Treasuries on Wednesday accelerated 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.

Markets are fully pricing in just one 25-basis-point U.S.

rate cut in 2025, and see around a 60% chance of a second.

All that has combined to make global stock market sentiment

fragile, and Asian equities closed lower on Thursday.

Chinese stocks slipped as official data underscored

persistent deflationary pressure despite fresh government

consumption stimulus, intensifying a scramble for offshore

assets, while Hong Kong's shares closed at a one-month low.

Mainland Chinese blue chips and Hong Kong's Hang

Seng ended down 0.3% and 0.2% respectively.

Japan's Nikkei closed down almost 1%, as investors

sold stocks to book profits after a recent rally, with

chip-related shares dragging on the index the most.

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

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

earlier at 1900 GMT.

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

will provide clues on the Fed policy outlook.

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.

"This move underscores Chinese policymakers' unwavering

preference for currency stability," said Shoki Omori, a

strategist at Mizuho Securities, predicting the Chinese currency

will firm to 7.22 per dollar by year-end.

Oil prices rose slightly on Thursday as investors factored

in firm winter fuel demand expectations despite large U.S. fuel

inventories and macroeconomic concerns.

Brent crude futures were up 38 cents, at $76.54 a

barrel by 1320 GMT. U.S. West Texas Intermediate crude futures

CLc1 gained 32 cents, or 0.4%, to $73.64.

Gold prices climbed 0.5% to $2,675.00 at $2,663 an

ounce after hitting an overnight peak of $2,670.10, the highest

since Dec. 13.

Leading cryptocurrency bitcoin tumbled 1.73% around

$92,810, following a two-day slide of 7%.