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Stocks wilt, bond yields jump as investors focus on rates

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Updated prices at 2:45 p.m ET/ 1845 GMT

By Sinéad Carew and Harry Robertson

NEW YORK/LONDON, May 29 (Reuters) -A global equities gauge fell on Wednesday while benchmark U.S. Treasury yields rose after a third weak government bond auction in a row, and investors worried about higher interest rates while they waited for a key U.S. inflation report due on Friday.

The dollar held firm, rising to a four-week high against the Japanese yen and bolstered by higher bond yields.

MSCI's gauge of stocks across the globe .MIWD00000PUS fell 8.15 points, or 1.03%, to 784.30, putting it on track for its biggest one-day percentage drop since April 30.

"On the equity market side we're getting close to month end" so people may be taking profits, said Charlie Ripley, senior investment strategist for Alliance Investment Management, also pointing to a weak 7-year U.S. Treasuries note auction following similar results for Tuesday's 2-year and 5-year note auctions.

"With the seven-year auction selling notes at a higher rate than the pre-auction level, that's three auctions in a row where yields came in higher. Higher rates are less attractive from an equity valuation standpoint," said Ripley.

He noted that investors focused on the Treasury auctions because investors were waiting for key economic data release.

The U.S. Core Personal Consumption Expenditures (PCE) price index report - the Federal Reserve's preferred measure of inflation - is not due out until Friday and the May labor report is not due until a week later.

At 02:45 p.m. the Dow Jones Industrial Average .DJI fell 409.30 points, or 1.05%, to 38,443.56, the S&P 500 .SPX lost 35.29 points, or 0.67%, to 5,270.75 and the Nasdaq Composite .IXIC lost 75.47 points, or 0.44%, to 16,943.81.

Earlier Europe's STOXX 600 .STOXX index closed down 1.08% for its biggest one-day percentage decline since mid April, as bond yields rose on worries interest rates will stay elevated for longer globally with fresh evidence of persistently high inflation in the region's biggest economy exacerbating concerns.

The U.S. 10-year Treasury yield hit a four-week high and was last up 7.8 basis points at 4.62%. The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations, rose 2.6 basis points to 4.983%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was narrower at negative 36.5 basis points.

The 7-year yield rose to 4.64% from 4.56% late Tuesday.

In currencies, the dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.41% at 105.09, with the euro EUR= down 0.45% at $1.0806.

Against the Japanese yen JPY=, the dollar was up 0.32% at 157.67 after hitting its highest level since May 1.

Oil prices eased on worries over weak U.S. gasoline demand and concerns the Fed will keep interest rates higher for longer.

U.S. crude CLc1 settled down 0.75% at $79.23 a barrel and Brent LCOc1 fell 0.74% at $83.60 per barrel.

Spot gold XAU= fell 0.93% to $2,338.92 an ounce as a stronger dollar, higher bond yields and hawkish comments from a Fed official on Tuesday still weighed on sentiment.

World FX rates YTD http://tmsnrt.rs/2egbfVh

Global asset performance http://tmsnrt.rs/2yaDPgn

Asian stock markets https://tmsnrt.rs/2zpUAr4

Bond yields are climbing again as rate cuts get pushed back https://reut.rs/3yEpCfY

Reporting by Sinéad Carew in New York, Harry Robertson in London; additional reporting by Kevin Buckland in Tokyo; Editing by Sam Holmes, Ros Russell, Chizu Nomiyama, Richard Chang and Daniel Wallis

To read Reuters Markets and Finance news, click on https://www.reuters.com/finance/markets For the state of play of Asian stock markets please click on: 0#.INDEXA

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