By Wayne Cole and Dhara Ranasinghe
LONDON, Aug 21 (Reuters) - Global stocks were set for their biggest weekly fall since mid-July on Friday, as strain in global bond markets showed little sign of abating, while diplomatic deadlock in the Gulf lifted oil prices to one-month highs and kept inflation risks to the fore.
U.S. Treasury yields resumed their climb after Wednesday's surprise intervention by 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 toward three-month lows hit on Thursday, with the greenback down almost 1% this week against other major currencies.
"The initial (Treasury buy back) 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, head of global corporate bonds 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 trading at around 5.25%, while the 10-year was a touch higher on the day at 4.71% . Markets assume 5.30% on thirty-year bond yields is now a pain threshold for Treasury, much like the 160 yen level has become for Japanese policymakers.
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 so far to almost 4%, on track for the biggest weekly drop since mid-July. South Korea and Taiwan both edged higher, but again were down on the week.
Although In Europe, stock markets etched out early gains. Still, the STOXX 600 index was set for its biggest weekly fall since early July, down around 1%. MSCI's world stock index was poised for its biggest weekly drop since mid-July.
On Wall Street, a bumper earnings season has provided some support with S&P 500 futures up 0.25%, while Nasdaq futures gained 0.5%.
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 to a one-month peak near $95, before profit-taking set in.
Brent futures were last off just 0.1% at around $93.64 a barrel, but still up more than 5% for the week, while U.S. crude eased 0.3% to $86.56. [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% higher at around $4,560 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. 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 fared a little better on the yen, which has plenty of problems of its own, and held near 159.
Data showed Japan's core consumer inflation accelerated in July as firms passed on rising import costs, while a survey of manufacturing showed a surge in new orders.
Both added to the case for a September rate hike from the Bank of Japan. Markets, however, are already priced for a quarter-point rise to 1.25% and would really like a commitment to faster and more aggressive tightening from policymakers.
(Reporting by Wayne Cole in Sydney and Dhara Ranasinghe in London; Editing by Shri Navaratnam and Saad Sayeed)
