LONDON, March 28 (Reuters) - Global bond and equity

markets are ending the first quarter on a high note, with

investors poised for more wild swings ahead after months of the

mood lurching between optimism and pessimism about prospective

rate cuts from major central banks.

MSCI's global share index, which smashed

through record highs in March, is up 10% since mid January after

traders dropped earlier bets for as many as seven U.S. rate cuts

in 2024 but then chose to celebrate the idea of cuts starting in

June.

Switzerland last week kicked off an easing cycle among big,

developed economies. And while traders almost fully expect the

Federal Reserve to lower U.S. borrowing costs from 23-year highs

in June and the European Central Bank to cut its deposit rate

from 4% then too, caution could follow.

Dennis Jose, head of equity strategy at Exane BNP Paribas,

said central banks could lower borrowing costs in the summer but

might then pause if economic growth improves -- raising the odds

of further labour market tightness, wage growth and inflation.

"I think it may be better to travel than arrive at that

first rate cut," he said.

EVERYTHING RALLY

A global government bond index posted its first

monthly gain of 2024 in March as the quarter's rally became a

buy-everything frenzy, sending Japanese stocks past their 1989

bubble-era high and powering stunning gains for emerging market

debt.

Wall Street's S&P 500 index and Europe's STOXX 600

index are near record levels.

Of major markets, only China was left out of the party as its

once-roaring industrial growth engine continued to sputter.

But it was really those high-yielding emerging market

international bonds that enjoyed some stellar rises - as

idiosyncratic reasons for optimism were magnified by U.S. rate

cut hopes.

Argentina's international bonds returned more than 25% in

the first quarter, fired up by hopes over the radical reform

agenda of chainsaw-wielding new President Javier Milei. Pakistan

matched those gains when a new government emerged from delayed,

inconclusive elections, now setting out to secure a fresh

multi-billion IMF deal. Returns for embattled Ukraine also

surpassed 25% while Egyptian debt benefited from capturing

billions of dollars from Abu Dhabi and a new IMF deal.

"High-yield EM sovereigns have strongly outperformed since

4Q23, buoyed risk-seeking from Fed pivot, easing of external

financing conditions, and IMF and GCC financing support has been

on the rise as China's financing have stabilized," said Citi

strategist Johann Chua.

In commodity markets, a supply shortage has pushed cocoa

futures to record highs, and in currencies the paring back of

Fed rate cut bets has left the dollar sailing high again.

The dollar index, which measures the greenback's value

against other major currencies, ends the quarter up almost 3%

. Its strength has created more pain for both major and

developing economies, with markets alert to Japanese

intervention to bolster a yen trading near 34-year lows.

MIXED SIGNALS

With investors now banking on a so-called "no landing"

scenario of rate cuts without recessions, some analysts warned

about the fallout from conflicting economic signals.

"This is a weird (economic) cycle where nothing is quite

what it seems and you've got all these conflicting signals right

now," said Andrew Pease, global head of investment strategy at

Russell Investments.

"This is not the sort of environment where you want to sit

back and buy in to the prevailing optimism."

So, even as markets bet on rate cuts, purchasing managers'

surveys show U.S. and euro zone business activity picking up.

Brent crude oil is up 13% over the quarter, after

the International Monetary Fund raised its global growth

forecast in January and the International Energy Agency hiked

its oil demand outlook in March.

Zurich Insurance Group's chief market strategist Guy Miller

said that while markets embraced the idea of better economic

growth supporting companies' earnings, recession risks should

not be forgotten.

"There is still a risk of recession in the U.S. and that

shouldn't be underestimated. And therefore as an investor, you

have be clear on what is driving markets and what, if any, risks

are being priced in."

A Deutsche Bank survey of 250 investors this month found

that almost half expected no U.S. recession and inflation to

still be above the Fed's average 2% goal by end-2024.

More than half of those investors surveyed believed the S&P

500, which influences the direction of stocks worldwide, was

more likely to fall by 10% than to rise by that amount.

"It would be a very different situation (to now) if

inflation surprises to the upside and rate cuts have once again

to be pushed further and further out. Financial markets would

suffer," Zurich's Miller said.