By Jamie McGeever

LONDON (Reuters) – Oil swept to a six-week high on Thursday after OPEC agreed to cut crude output to help clear a glut, while sterling hit a three-month peak after traders interpreted comments from a senior UK official as a crack in the government’s “hard Brexit” line.

Global bond yields rose on prospects that resulting inflationary pressures from oil’s surge will lead to higher interest rates, with the benchmark 10-year U.S. Treasury yield matching November’s 16-month high.

European stocks dived, shrugging off the bounce in Asian shares and following the S&P 500’s fall the previous day instead. U.S. futures pointed to another slight decline at the open on Wall Street.

The Organization of the Petroleum Exporting Countries on Wednesday agreed to its first output cut since 2008, finally taking action after global oil prices fell by more than half in the last two years.

Non-OPEC Russia will also join output reductions for the first time in 15 years. [nL8N1DV1UH]

U.S. crude oil added to overnight gains of 9 percent to reach $50.00 a barrel for the first time since October. Brent crude, which soared $4 overnight, touched a six-week peak of $52.73 a barrel.

The jump in oil prices added to inflation expectations in the United States, which were already rising on prospects that President-elect Donald Trump would adopt reflationary policies using a large fiscal stimulus.

“We’ve had a spike in oil prices plus better data, so we’re seeing the reflation trade come back,” said Martin van Vliet, senior rates strategist at ING.

As a result the rout in U.S. Treasuries resumed, with yields pushing higher, especially on longer-dated bonds. The yield on 10-year and 30-year bonds <US10YT=RR<, which are most sensitive to inflation eroding their value, rose 5 basis points to 2.417 percent and 3.077 percent, respectively.

STERLING EFFORT

The 30-year yield has climbed more than 40 basis points since the Nov. 8 presidential election, heading back towards a 14-month peak of 3.09 percent marked last week.

The 10-year yield had its biggest monthly rise in November since 2009. Bonds across the world have lost about $2 trillion in market value since the Nov. 8 U.S. election, according to Bank of America Merrill Lynch data.

Sterling grabbed the limelight in currencies, jumping to a three-month high against the euro and on a trade-weighted basis after Britain’s Brexit minister David Davis said London would consider paying into the EU budget for market access.

The pound had slumped to historic lows following June’s vote to leave the European Union on fears of a “hard Brexit”, which would see Britain give up full access to the single market and the EU customs union in favour of retaining full control over its borders.

“These headlines suggesting Britain may be able to access the single market are generating substantial sterling demand from traders and investors looking to reduce their short positions and unwind hedges,” said Neil Jones, head of FX hedge fund sales at Mizuho.

The Bank of England’s trade-weighted broader measure of sterling rose to 78.8 and the pound was at its strongest against the euro for three months at 83.96 pence per euro. It hit a three-week high of $1.2650 against the dollar after Davis’ comments.

The dollar advanced to a 9-1/2-month high of 114.83 yen before pulling back to 114.30 and the euro recovered from the previous day’s slide to trade back above $1.06 after shedding 0.6 percent the previous day.

Europe’s index of leading 300 shares was down 0.8 percent at 1,340 points, Germany’s DAX was down 1 percent and sterling’s strength drove Britain’s FTSE 100 down 1.3 percent.

Energy and resources stocks in Europe shares outperformed the broader indices, which snapped a two-day winning run. The STOXX Europe 600 Oil and Gas index was up 1.5 percent, while the basic resources index was up 2.1 percent.

MSCI’s index of Asian shares ex-Japan rose 0.4 percent, lifted by stronger-than-expected Chinese manufacturing data, and Japan’s Nikkei 225 rose 1.1 percent after the yen fell to its lowest since February close to 115 per dollar.

Spot gold touched a 10-month low of $1,163.45. Bullion fell 8 percent in November, its worst month in three years.

(Editing by Hugh Lawson)

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By Rania El Gamal and Alex Lawler

VIENNA (Reuters) – OPEC began on Wednesday debating a deal to curtail oil production and prop up the price of crude, with Iran and Iraq resisting pressure from Saudi Arabia to participate fully in any action.

Ministers from the Organization of the Petroleum Exporting Countries started an informal meeting at 0700 GMT at the Vienna Park Hyatt hotel and were due to begin a formal gathering at OPEC headquarters at 0900 GMT.

“There will be an agreement today,” an Iraqi delegate said as he entered the hotel.

“I’m optimistic,” said Iranian Oil Minister Bijan Zanganeh, adding there had been no request for Iran to cut output.

On Tuesday, Iran wrote to OPEC saying it wanted Saudi Arabia to cut production by as much as 1 million barrels per day (bpd), much more than Riyadh is willing to offer, OPEC sources who saw the letter told Reuters.

The 14-country group, which accounts for a third of global oil production, made a preliminary agreement in Algiers in September to cap output at around 32.5-33 million bpd versus the current 33.64 million bpd to prop up oil prices, which have halved since mid-2014.

OPEC said it would exempt Iran, Libya and Nigeria from cuts as their output has been crimped by unrest and sanctions.

The deal was seen as a victory for Iran. Tehran has long argued it wants to raise production to regain market share lost under Western sanctions, when its political arch-rival Saudi Arabia increased output.

In recent weeks, Riyadh changed its stance and offered to cut its output by 0.5 million bpd, according to OPEC sources, while suggesting Iran limit production at around 3.8 million bpd – in line with or slightly above the country’s current output.

Tehran has sent mixed signals, saying it wanted to produce as much as 4.2 million bpd. Iran’s letter to OPEC suggested Saudi Arabia should cut output to 9.5 million bpd.

Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State. Iran and Iraq together produce over 8 million bpd, only slightly behind long-time leader Saudi with 10.5 million bpd.

The argument between Iraq and Saudi Arabia mainly focuses on whether Baghdad should use its own output estimates to limit production or rely on lower figures from OPEC’s experts.

Brent crude rose 1.5 percent on Wednesday to more than $47 a barrel after heavy losses a day earlier. [O/R]

Some analysts including Morgan Stanley and Macquarie have said oil prices will correct sharply if OPEC fails to reach a deal, potentially going as low as $35 per barrel.

(Additional reporting by Vladimir Soldatkin, Shadia Nasralla and Lisa Barrington; Writing by Dmitry Zhdannikov; Editing by Dale Hudson)

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By Robin Emmott

LUXEMBOURG (Reuters) – The European Union will prepare economic sanctions on the Democratic Republic of Congo unless its ruling coalition, which has delayed next month’s elections, holds a fresh vote early next year, diplomats say.

President Joseph Kabila was due to leave at the end of his mandate in December but authorities have postponed it until April 2018, citing logistical problems.

The vote delay sparked two days of protests in the capital Kinshasa last month that killed dozens of people.

“Elections must take place as early as possible, and no later than in 2017,” said an EU diplomat involved in the talks. “Given the situation, we are prepared to consider sanctions and work is already under way,” the diplomat said.

European Union foreign minister meeting in Luxembourg on Monday are expected to agree a statement in which they will make clear that travel bans and asset freezes are a genuine threat.

“The EU will use all the means at its disposal, including individual restrictive measures,” said a draft statement seen by Reuters that would target “those responsible for serious human rights violations, those who promote violence.”

Foreign ministers are expected to task EU foreign policy chief Federica Mogherini to draw up sanctions, which could be on senior police and other members of the security forces, potentially broadened to government officials at a later stage if there is no progress on an electoral agenda.

The European Union, a major donor of foreign aid as well as a big foreign investor and trade partner, is also seeking an independent inquiry into the violence last month and wants talks on a new timetable for presidential and parliamentary elections.

Former colonial power Belgium is pushing EU governments to reduce the duration of diplomatic visas issued to officials, having cut its own visas to six months, one diplomat said.

Kabila, who came to power in 2001 when his father was assassinated, says he will respect the country’s constitution but has yet to rule out attempting to change laws to enable him to run for a fresh term.

The presidents of neighbouring Rwanda and Congo Republic changed their constitutions last year to allow themselves to stand for a third term. Kabila’s opponents say they fear he will do the same.

Hundreds of people have also died since last year in Burundi, where the EU has also imposed sanctions, after its president Pierre Nkurunziza pursued and won a third term in office that his opponents say is unconstitutional.

The head of the U.N. mission in Congo warned last week that the political impasse poses an “extreme risk” to stability. Millions died in regional conflicts between 1996 and 2003 and Congo has never had a peaceful transition of power.

(Reporting by Robin Emmott; Editing by Tom Heneghan)

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GENEVA (Reuters) – The top U.N. human rights forum agreed on Friday to set up a commission of inquiry to identify perpetrators of alleged international crimes in Burundi, including killings and torture, and ensure that they are brought to justice.

The 47-member state forum adopted a resolution submitted by the European Union by a vote of 19 states in favour and 7 against with 21 abstentions.

Burundi’s delegation took the floor after the vote to reject the resolution as containing “a lot of lies” about the situation in the central African country which it said had stabilised.

(Reporting by Stephanie Nebehay, editing by Tom Miles)

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JOHANNESBURG (Reuters) – Moody’s may cut the ratings of five South African state-owned firms, including utility Eskom, it said on Wednesday, citing funding risks after some local institutional investors said they had stopped lending to some parastatals.

Asset manager Futuregrowth, which manages client assets of about $12 billion, and rival Abax Investments said this month they had reduced or stopped lending to several state-run firms due to political uncertainty and governance issues.

Moody’s said in a statement it was putting Eskom’s Ba1 rating on review for downgrade on the grounds that its funding needs were exacerbated by the rising cost of buying power from independent producers, as well as its spending to revamp and build new power stations.

Eskom is building new plants and transmission lines to augment a power grid that nearly collapsed in 2008 and forced the company to implement controlled blackouts, or load shedding, early last year that dented economic growth.

Chief Financial Officer Anoj Singh called the review “unfortunate” and said Eskom would meet Moody’s to resolve its concerns.

“The review by Moody’s is unfortunate given the progress made towards improving the company’s financial profile, successful implementation of the operations turnaround plan and Eskom’s healthy liquidity position,” Singh said in a statement.

Moody’s is also reviewing the ratings of four other state-controlled entities: the Development Bank of Southern Africa, the Industrial Development Corporation, the South African National Roads Agency (SANRAL) and Land Bank.

“Today’s review for downgrade … primarily reflects the increased risk of funding and liquidity challenges, following some signals of increased risk aversion by funding counterparties owing to market concerns regarding the governance of South African state-owned enterprises,” Moody’s said.

Many of South Africa’s 300-odd state-owned companies, including South African Airways, are a drain on the government’s purse and rating agencies have singled out some as threat to the country’s investment grade rating.

South Africa’s President Jacob Zuma last month defended plans to give his office supervision over state-controlled companies after allies of under-fire Finance Minister Pravin Gordhan said it was a tool to limit his control.

Analysts have said Zuma’s team and the Treasury under Gordhan have disagreed about government spending, including on loss-making state firms, such as South African Airways.

Gordhan has pledged to rein in government spending to limit rising inflation, narrow a gaping budget deficit and appease ratings agencies considering cutting South Africa to “junk” status in reviews expected by December.

(Reporting by Tiisetso Motsoeneng; Editing by David Clarke and Catherine Evans)

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