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Treasury yields remain elevated but dollar under pressure

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Japanese bonds in focus after steep selloff on Tuesday

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Crude prices jump after report of Israel preparing strike

on

Iran nuclear facilities

(Updates prices at European market open)

By Lawrence White

LONDON, May 21 (Reuters) -

Stocks were muted and the U.S. dollar under pressure on

Wednesday, as investors fretted about the fiscal outlook for

major developed economies and the lack of progress on trade

deals.

Oil prices rose more than 1% after a CNN report said that

Israel was preparing a strike on Iranian nuclear facilities,

raising supply concerns out of the key Middle East producing

region and bringing geopolitical concerns back into focus.

Investor sentiment has been fragile since Moody's last week

downgraded the United States' credit rating, stoking worries

about the country's $36 trillion debt pile, with U.S. President

Donald Trump pushing for tax cuts that could worsen the debt

load by $3 trillion to $5 trillion.

There are also concerns about a lack of progress on U.S.

trade talks with trading partners pressing Washington to ease or

eliminate its tariffs.

The STOXX benchmark of major European shares fell 0.2% in

early trading, and U.S. stock futures indicated a

lower open on Wall Street.

Treasury yields have stayed elevated, with the yield on

30-year Treasury bonds hitting 5%. That brought no

respite to the dollar as investors flocked to safe haven

currencies including the yen and the Swiss franc.

"People are looking at the idea of moving capital out of the

U.S. and it's certainly not a mass exodus, but people are

looking at the opportunities in some of these other markets

again," said Chris Weston, head of research at Pepperstone.

Investors sought those opportunities in Asia, with MSCI's

broadest index of the region outside Japan up

0.8% at a seven-month high.

In currencies, dollar selling accelerated in Asia, driving

the yen, Swiss franc and the euro

to their strongest levels in two weeks.

The pound touched a three-week high and last bought

$1.3428. British inflation jumped to a higher-than-expected

annual rate of 3.5% in April from 2.6% in March.

Markets were also monitoring the Group of Seven finance

ministers' meetings currently underway in Canada for any hints

that a weaker dollar could help advance trade negotiations.

Investors in the Japanese bond market remained jittery after

a steep selloff in super-long bonds in the previous session.

Yields on longer-dated bonds hovered near record highs on

Wednesday, with questions over how the country could fund new

fiscal stimulus, with the central bank trying to normalise

monetary policy.

Data on Wednesday showed Japanese shipments to the U.S. fell

in April even as exports rose for the seventh straight month,

highlighting the toll President Donald Trump's tariffs could

take on the fragile economic recovery in Japan.

Analysts said any progress on deals between the U.S. and its

trade partners could fuel risk appetite, but there are concerns

Trump's policies could still damage the global economy.

On Tuesday, U.S. Federal Reserve officials said prices were

rising on the back of higher U.S. import tariffs and counselled

patience before making any interest rate decisions.

Gold prices rose on Wednesday as the dollar weakened and

investors flocked to safe-haven assets. Spot gold was

0.7% at $3,311 per ounce, the highest in more than a week.