By Dhara Ranasinghe and Wayne Cole
LONDON/SYDNEY, Aug 21 (Reuters) - Global stocks were headed for a mostly lower week on Friday, as strain in global bond markets showed little sign of abating and the diplomatic deadlock in the Gulf lifted oil prices to one-month highs.
U.S. government bond yields resumed their climb after Wednesday's surprise intervention by the Treasury brought barely a day of relief from selling sparked by concerns about elevated inflation and fiscal pressures.
The rise came even
as U.S. Treasury Secretary Scott Bessent said he could further increase the government's repurchases of Treasuries, and floated the idea of fiscal consolidation.
Analysts were sceptical he could find enough spending cuts to seriously curb a budget deficit of more than 6% of gross domestic product, with interest charges alone this year running at $1.2 trillion, while the U.S. debt pile just crossed $40 trillion.
All this left the dollar heading back towards three-month lows hit on Thursday, with the greenback down almost 1% this week against other major currencies.
"The initial (Treasury buyback) move was quite remarkable because it came totally as a surprise, but the big question is, 'is this meaningful enough to have a long-lasting impact?'" said Christian Hantel, a portfolio manager at Vontobel.
"We could see the market still trying to test if they're ready to increase from the $4 billion they have announced before. So, it could be an interesting couple of days."
The U.S. 30-year bond yield was up 3 basis points at 5.266%, while the 10-year yield was up 3.2 basis points at 4.73%. Selling on Friday was heaviest in the 2-year Treasury, which was up 5 basis points for the day and 9 bps for the week at 4.236% following a stronger-than-expected U.S. purchasing managers' report. Markets assume 5.3% on 30-year bond yields is now a pain threshold for Treasury, much as the 160 yen level has become for Japanese policymakers.
COST OF BORROWING
Higher yields lift debt costs globally, just as tech giants are borrowing heavily to fund AI capex, while raising the discount on corporate earnings and challenging stock valuations.
The strain was evident in the Nikkei, which slipped 0.3%, bringing losses for the week to almost 4%, the biggest weekly drop since mid-July.
In Europe, stock markets eked out early gains. Still, the STOXX 600 index was set for its biggest weekly fall since early July, down nearly 1%. MSCI's world stock index was down slightly.
On Wall Street, a bumper earnings season has provided some support with major indexes up nearly 1% at midday Friday, though they remained down for the week by 2% or so.
The AI trade faces a test next week when Nvidia reports, with much riding on its outlook for infrastructure demand and data centre revenue.
Walmart on Thursday showed what happens when high expectations are disappointed, sliding 9% on a sales miss.
WARFARE AND DEBASEMENT
Bessent also made news by expanding on President Donald Trump's pledge of economic warfare against Iran, saying the U.S. would impose "the toughest sanctions in history" on the country.
The threats further dimmed hopes for a deal that would fully open the vital Strait of Hormuz and pushed Brent crude to a one-month peak near $95 a barrel, before profit-taking set in.
Brent futures were last up around 0.5% at $94 a barrel, up more than 5% for the week, while U.S. crude rose 0.4% to $87. [O/R]
In currency markets, the dollar was nursing broad losses for the week amid worries ever-growing U.S. debt and policy uncertainties will erode the purchasing power of the currency, driving investors to scarce assets including gold.
The yellow metal was 1.45% higher at around $4,583 an ounce and touched its highest level in almost three months. [GOL/]
The dollar index was off almost 0.9% for the week at 98.74, having hit a three-month trough overnight. The euro was up 1.0% on the week at $1.1686, after touching a 14-week peak. It was last trading at around $1.1689, off session peaks.
Against the safe-haven Swiss franc, the dollar slid 1.7% in its biggest weekly loss since January at 0.7995 francs.
Concerns over the growing U.S. debt pile also drove some investors towards alternatives such as bitcoin, which has typically benefited from efforts to diversify away from U.S. assets.
Bitcoin scaled a more than two-month high on Friday and was last up almost 6% at $76,446, on track for a 20% weekly rise, which would mark its largest gain in 2-1/2 years.
"The dollar has come under renewed pressure, in part due to a resurgent 'debasement' narrative," said Jonas Goltermann, chief markets economist at Capital Economics.
"While we continue to think such concerns are somewhat overblown, and that the economic backdrop overall will point to a stronger dollar over the coming months, continued surprises from U.S. policymakers may well matter more in the near term."
The dollar was last down around 0.2% at 158.79 yen.
(Reporting by Wayne Cole in Sydney and Dhara Ranasinghe in London; Editing by Shri Navaratnam, Saad Sayeed, Alex Richardson and Colin Barr)
