* Investors hopeful after Israel request for Lebanon

peace talks

* Oil prices swing after Wednesday's steep slide

* Wall Street turns higher on latest Middle East peace

efforts

* European shares dipped after strongest day in four

years

(Updates prices with US stock market close, oil settlement)

By Sinéad Carew and Marc Jones

NEW YORK/LONDON, April 9 (Reuters) - MSCI's ( MSCI ) global

equities gauge gained modestly on Thursday while the dollar lost

ground and oil's rally narrowed, after Israel sought peace talks

with Lebanon and renewed hopes for the fragile Gulf truce.

Investor optimism about the prospects for Middle East peace

returned late in the U.S. morning when Israeli Prime Minister

Benjamin Netanyahu said he wanted Israel to begin peace talks

with Lebanon that would also include the disarming of Hezbollah,

which is linked to Iran.

The announcement shook off some market anxiety the day after an

Israeli bombardment of Lebanon killed more than 300 people and

appeared to place Donald Trump's U.S.-Iran peace process in

jeopardy. Iran had indicated that Lebanon should be part of the

ceasefire that was announced on Tuesday night.

Israel's strikes and scant signs of an opening of the Strait of

Hormuz, a key oil conduit, had sent oil prices sharply higher

earlier on Thursday.

But U.S. crude settled up 3.66%, or $3.46, at $97.89

a barrel, well below the $102.70 peak for the day, and Brent

, after rising earlier to $99.50, settled for the day at

$95.92 per barrel, up 1.23%, or $1.17.

U.S. equity gains were relatively modest, however, compared

with Wednesday's more than 2% rally, as investors still viewed

the ceasefire as fragile. Mona Mahajan, head of investment

strategy and asset allocation at Edward Jones in New York, said

she is expecting "bumps along the way before we hit a real

meaningful and steady state of reconciliation."

"But, what markets are really reacting to is this idea that

the worst-case scenario has been taken off the table. There was

a real concern that, if things escalated, oil prices could stay

meaningfully above $100 for an extended period of time," Mahajan

said. "Markets are assessing that the direction of travel is

headed towards reconciliation, some sort of peace agreement, and

notably not headed in the wrong direction of escalation."

On Wall Street, the Dow Jones Industrial Average rose

275.88 points, or 0.58%, to 48,185.80, the S&P 500 rose

41.85 points, or 0.62%, to 6,824.66, and the Nasdaq Composite

rose 187.42 points, or 0.83%, to 22,822.42.

MSCI's ( MSCI ) gauge of stocks across the globe rose

2.11 points, or 0.20%, to 1,033.16.

Earlier, the pan-European STOXX 600 index had

closed down 0.15%.

Asian markets had reflected overnight jitters, with Japan's

Nikkei falling 0.7% after jumping more than 5% on

Wednesday. South Korea dipped 1.6%, following a leap of

6.8% in the prior session, and MSCI's ( MSCI ) broadest index of

Asia-Pacific shares outside of Japan eased 0.7%

after Wednesday's 5% rally.

ASSETS TURN ON MIDDLE EAST HOPES

U.S. Treasuries were mixed with the yield on benchmark U.S.

10-year notes falling 0.2 basis point to 4.289%,

from 4.291% late on Wednesday, while the 30-year bond

yield rose 0.8 basis point to 4.8938%.

The two-year note yield, which typically moves in

step with interest rate expectations for the Federal Reserve,

fell 0.9 basis point to 3.785%, from 3.794% late on Wednesday.

In currencies, the dollar index, which measures the

greenback against a basket of currencies including the yen and

the euro, fell 0.23% to 98.83, with the euro up 0.3% at

$1.1697.

Against the Japanese yen, the dollar strengthened 0.34%

to 159.12.

In precious metals, a weaker U.S. dollar lent support, while

investors assessed the prospects for peace and awaited key

inflation data.

Spot gold rose 1.12% to $4,769.23 an ounce while spot

silver rose 2% to $75.60 an ounce.

Inflation is a major concern for investors as they wait for

March U.S. Consumer Price Index (CPI) data, which is expected to

reflect the impact from oil prices that are still sharply higher

than pre-war levels. The data is due on Friday before the market

open.

"Inflation, while it will have some shock and awe in the next

few months, should continue to move in the right direction

through year-end," Mahajan said.