By Karen Brettell
July 27 (Reuters) - Stocks were mixed on Monday while oil prices tumbled and Treasury yields dropped after the U.S. and Iran paused strikes over the weekend, halting two weeks of attacks.
The news raised hopes of a diplomatic solution that would de-escalate the conflict and allow shipping to resume through the Strait of Hormuz. Investors remained cautious, however, as tensions remain high. Saudi Arabia, Jordan and Iraq reported drone attacks on Monday, as Tehran appeared to test President
Donald Trump's latest strategic U-turn.
"It's as durable as a shooting star," said Jay Hatfield, chief executive and chief investment officer at Infrastructure Capital Advisors in New York.
"We have had the view that Iran was not going to come to a long-term agreement, but did think they would kick the can down the road. So we might get some more can kicking."
Central bank interest rate decisions and key tech company earnings due this week are also keeping some investors on the sidelines.
U.S. crude fell 6.35% to $83.66 a barrel and Brent fell to $90.18 per barrel, down 6.82% on the day.
The yield on benchmark U.S. 10-year notes fell 2.42 basis points to 4.655%, from 4.679% late on Friday.
The Dow Jones Industrial Average was the best performing major U.S. stock index, rising 346.81 points, or 0.67%, to 52,294.06. The S&P 500 rose 1.90 points, or 0.03%, to 7,414.01 and the Nasdaq Composite fell 50.57 points, or 0.20%, to 24,925.25.
The pan-European STOXX 600 index rose 0.35%, while Europe's broad FTSEurofirst 300 index rose 8.08 points, or 0.31%.
CENTRAL BANKS IN FOCUS
The U.S. Federal Reserve is expected to hold rates steady when its two-day meeting concludes Wednesday, though traders see a risk of a hike.
Fed expectations have been whipsawed after the recent uptick in oil prices reignited inflation fears. Fed Chairman Kevin Warsh's preference for less forward guidance is adding to the uncertainty over whether the central bank will raise rates.
Fed funds futures traders are currently pricing in 38% odds of a hike on Wednesday and an 81% probability of an increase by September.
The Bank of England will announce its policy decision on Thursday, followed by the Bank of Japan on Friday. Both are expected to hold rates steady while flagging continued caution about inflation risks ahead.
The dollar dipped 0.7% against the yen to 163.73. In commodity markets, gold climbed 0.42% to $4,069.42 an ounce.
A WAVE OF COMPANIES REPORT EARNINGS
Investors are also watching corporate earnings, with roughly one-third of S&P 500 companies due to report this week.
Results from "Magnificent Seven" members Microsoft, Amazon.com, Meta and Apple will be seen as a key test of the AI trade.
Negative cash-flow reports from Alphabet and Tesla last week added to concerns about debt-fueled corporate spending, while Chinese chipmaker CXMT's strong stock market debut signalled intensifying competition for the U.S. semiconductor industry.
"This is a very big week. It could determine whether hyperscalers or semiconductors and memory stocks outperform for the remainder of the year," said Thomas Hayes, chairman at Great Hill Capital.
On the data front, the week's highlights include the U.S. advance second-quarter GDP reading. The June PCE price index, personal income and consumption data, weekly jobless claims, the second-quarter employment cost index, and the July Michigan consumer sentiment survey round out the calendar.
In the euro zone, the data schedule includes flash second-quarter GDP, July economic sentiment and consumer confidence, flash inflation, and June unemployment figures.
The Ifo Institute's survey on Monday showed German business morale improved more than expected in July, driven by significantly stronger expectations.
(Reporting by Karen Brettell; Additional reporting Sruthi Shankar, Chuck Mikolajczak, Johann M Cherian, Ragini Mathur, Florence Tan and Trixie Yap; Editing by Joe Bavier)
