By Vikram Subhedar
LONDON (Reuters) - Reassuring results from some of Europe's biggest banks gave the region's beaten-down financials a boost on Thursday and helped offset weakness in industrial and tech stocks, while higher bond yields continued to underpin the dollar.
As corporate earnings continued to dominate headlines, growing expectations that the U.S. Federal Reserve will raise interest rates by the end of the year have kept gains in risky assets in check.
Stocks futures on Wall Street were up 0.3 percent.
Markets are now pricing in a 74 percent chance that the U.S. Federal Reserve will raise interest rates at its December meeting, according to CME Group's FedWatch tool, following a series of hawkish comments from Fed policymakers.
Bets that the Fed will hike rates have driven the dollar to nine-month highs against a basket of currencies this week and have supported 10-year U.S. Treasury yields.
The "steepening of the U.S. yield curve works as a magnet for capital coming at this point in particular out of low yielding environments such as Japan and Switzerland," said Morgan Stanley analysts, adding that these flows would continue to support the dollar.
The dollar index was little changed at 98.538, just off recent highs.
An overnight slide in oil prices and underwhelming results from Apple soured the mood in Asian stocks where technology sectors led losses in Japan.
Europe's STOXX 600 was off 0.1 percent, with defensive sectors such as healthcare and utilities providing the biggest boost to the index, underscoring investor caution.
Banks, among the worst performing sectors in Europe this year, rose 0.4 percent, helped by a surprise third-quarter profit at Deutsche Bank and forecast-beating numbers from Barclays which, like its U.S. rivals, enjoyed a significant pick-up in bond trading revenue.
Data from the European Central Bank showing lending growth to euro zone companies and households grew at a steady pace last month was also seen helping the sector which has come under heavy pressure this year over concerns about regulatory costs and eroding profitability.
The UK economy barely slowed in the third quarter despite the Brexit vote, with much stronger growth than expected, prompting a further selloff in bonds and spike in yields.
UK 10-year government bond yields rose to a 10-day high of 1.2 percent as the strong data further diminished the chance of a fresh interest rate cut by the Bank of England next week.
At a time when the market is worried that central banks are stepping back from the ultra-accommodative stance of recent years, a reduced chance of a rate cut was enough to push benchmark bonds in Europe and U.S. to their highest level since the Brexit vote in late June.
In commodity markets, crude oil futures rebounded from earlier losses as a further drop in U.S. crude inventories countered investor doubts that OPEC will be able to implement a production cut.
U.S. crude edged up 0.2 percent to $49.28 a barrel, while Brent crude added 0.5 percent to $50.22.
Spot gold XAU= rose 0.2 percent to $1,269.38 an ounce.
(Editing by Robin Pomeroy)
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