(Updates prices at 4:38 p.m. ET (2038 GMT))

* Wall Street indexes surge, but notch large monthly

losses

* STOXX 600 fell 8% in March, biggest monthly loss since

2022

* Euro zone inflation rises on oil shock, data shows

By Chris Prentice and Elizabeth Howcroft

NEW YORK/PARIS, March 31 (Reuters) - Global equity and

bond markets jumped on Tuesday on speculation of a potential

de-escalation in the Middle East conflict that has driven the

biggest one-month increase in global oil prices in history.

Despite the rally, financial assets have suffered through a

gloomy month on fears of rising inflation and stagnant growth.

The surge in oil prices on the back of the worst energy supply

interruption ever has sent investors to the exits in both the

bond and stock markets throughout March.

Europe's benchmark STOXX 600 index fell 8% in

March, logging its steepest monthly decline in nearly four years

and ending an eight-month string of gains.

Tuesday's rebound was driven by unconfirmed reports that

Iran's president - who has less power than the country's supreme

leader - said the country was ready to end the month-long

war. Global stocks were also boosted by an earlier Wall Street

Journal report that U.S. President Donald Trump had told aides

he is willing to end the military campaign even if the crucial

Strait of Hormuz remains largely closed.

However, Trump has contradicted his own message at times, as

he also warned that the U.S. would "obliterate" Iran's energy

plants and oil wells if it does not open the strait, which is

used to transit roughly one-fifth of the world's oil and gas.

Equity markets are "taking the U.S. administration at their

word, that they're going to end the war," said Colin Graham,

head of multi-asset strategies at Dutch asset manager Robeco.

"They haven't moved to day two, where the Strait of Hormuz

could still be closed."

Brent crude futures for May settled up 4.94% at

$118.35 per barrel ahead of expiry.

The Brent June contract settled down $3.42 at

$103.97 per barrel and U.S. crude futures settled down $1.50 or

1.46% at $101.38.

The average U.S. retail price of gasoline hit $4 a gallon on

Monday.

THE WAR'S GLOBAL REACH

The war, which began with the U.S. and Israel launching

coordinated strikes against Iran in late February, has sent

shockwaves across global markets and raised the risk of a

worldwide recession.

MSCI's gauge of stocks across the globe

rose 18.07 points, or 1.88%, to 978.94.

On Wall Street, the Dow Jones Industrial Average rose

2.49% to 46,341.51, the S&P 500 gained 2.91% to 6,528.52

and the Nasdaq Composite climbed 3.83% to 21,590.63.

"What we've seen from a messaging standpoint from the

administration is a bit of indication they may start to either

wind down or pivot," said Alonso Munoz, chief investment officer

at Hamilton Capital Partners.

"You get these periods where the market gets so oversold

that you just have relief rallies on any indication that there's

good news."

The pan-European STOXX 600 index rose 0.41%, and

Europe's broad FTSEurofirst 300 index gained 0.40%.

Still, the Iran conflict has left the S&P 500 and the Dow

with their deepest quarterly declines since 2022 as investors

worry that a wave of higher fuel costs could hurt demand for

goods and services, while forcing the Federal Reserve to raise

interest rates to contain inflation.

U.S. job openings, a measure of labor demand, fell more than

expected in February and hiring dropped to the lowest level in

nearly six years, government data showed on Tuesday.

INFLATION AND GROWTH FEARS

The oil shock pushed euro zone inflation above the European

Central Bank's 2% target in March.

Government bond yields had retreated from multi-year highs

at the start of the week after rising sharply this month because

of the conflict, with investors appearing to refocus on the risk

of weaker growth stemming from the energy shock.

U.S. Treasury prices rallied, sending yields lower, after a

month of heavy selling, as the de-escalation hopes boosted

demand for government debt.

The German two-year yield fell 3.3 basis points

to 2.588%.

The European Union's energy chief has told governments to

prepare for "prolonged disruption" to energy markets as a result

of the war, ahead of an emergency meeting on Tuesday.

"If the Strait of Hormuz remains closed for the next week or

two, then I think we'll be raising our probabilities of

recession in our scenario analysis," Robeco's Graham said,

adding that this was not yet the case.

The dollar index, which measures the greenback

against a basket of currencies, fell 0.69% to 99.86, but

remained on course for a monthly gain.

The Japanese yen rose 0.62% against the greenback to

158.73 per dollar.

Japan's finance minister said that the government was ready

to respond "on all fronts" against foreign exchange volatility,

underscoring Tokyo's alarm over the yen's recent slide.

Spot gold rose 3.52% to $4,669.09 an ounce but was

still poised to end the month down over 10%. U.S. gold futures

settled 2.7% higher at $4,678.60.