GLOBAL MARKETS-Stocks climb despite Iran uncertainty, dollar near recent highs, oil up

That strength was only partly mirrored in major European and Asian stock indexes, which made some ground this week but lagged behind the U.S. rally. "Our view is that equities will likely move higher over the medium term, based on a ‌combination of strong earnings, oil prices that stay contained enough to avoid a broader growth shock, and a Federal Reserve that remains supportive," Mark Haefele, chief investment officer at UBS Global Wealth Management, said.

European stocks ​were set for their biggest weekly gain since early April, while U.S. ‌equities ​were poised to record an eighth straight weekly advance on Friday, although a great deal of uncertainty continued to surround U.S.-Iran peace talks. Iran's foreign minister met Pakistan's interior minister on Friday to discuss proposals to end the U.S.-Israeli war, Iranian media reported, with Tehran and Washington still at odds over Tehran's uranium stockpile and controls on ‌the Strait of Hormuz.

The S&P 500 was on track for its eighth straight weekly gain, driven by booming demand for AI-related stocks as investors largely downplayed the potential economic fallout from the Middle East conflict and the energy shock. That strength was only partly mirrored in major European and Asian stock indexes, which made some ground this week but lagged behind the U.S. rally.

"Our view is that equities will likely move higher over the medium term, based on a ‌combination of strong earnings, oil prices that stay contained enough to avoid a broader growth shock, and a Federal Reserve that remains supportive," Mark Haefele, chief investment officer at UBS Global Wealth Management, said. UBS forecasts Brent ‌crude at $105 at the end of September and $95 at year-end and believes "that the bar for a Federal Reserve hike remains high."

MSCI's main world stocks index rose 0.21%. Europe's STOXX 600 was up 0.43% and on track for a weekly gain of 2.8%. Nasdaq futures climbed 0.11% and S&P 500 futures increased 0.13%. The S&P 500 index edged 0.17% higher on Thursday at 7,445.72, after hitting 7,517.12 last week, a fresh record high. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.74%. Japan's Nikkei gained 2.8%, led by artificial intelligence-related shares.

“Oil prices have also moved ⁠higher again ​as investors weigh the risk that talks drag on or ⁠fall apart,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. "The honest answer is that nobody really knows where these negotiations are heading, but for now, markets are doing what they often do when a potential geopolitical off-ramp appears - tentatively moving as if the good news ⁠could be around the corner."

OIL PRICES UP BUT WELL BELOW RECENT HIGHS Brent crude futures rose 2.5% to $105.28 a barrel but were set for a 3.8% drop for the week. They hit $126.41 in late April.

Prolonged energy disruptions threaten to feed through to prices ​across the globe, spurring traders to price in rate hikes. Markets are now pricing in a more than 50% chance of a rate hike from the U.S. Federal Reserve by the end of the ⁠year, according to the CME FedWatch tool, versus expectations of two rate cuts before the war started.

That has lifted Treasury yields and boosted the dollar, which has also benefited from safe-haven demand. The euro was at $1.1614, close to the six-week low it hit on Thursday, and is set ⁠for ​a 1% drop this month. Against a basket of currencies, the dollar was up 0.18% at 99.37. The Japanese yen last fetched 159.11 per dollar, perilously close to the crucial 160 level that traders fear could bring Japanese authorities into the market again. "Energy prices need to rapidly and quickly reverse, otherwise the combination of fiscal spending and a capex boom is a recipe for a lot of inflation, especially in the U.S.," said George ⁠Saravelos, global head of forex research at Deutsche Bank, after mentioning a global increase in fiscal spending and AI investment.

Incoming Federal Reserve Chair Kevin Warsh "will have to pick between adding volatility to front-end rates, and help ⁠the dollar, or the back-end, and hurt the dollar, but ⁠he can’t avoid both," Saravelos said. Fed rate hikes push up short-dated yields, while no action by the central bank could boost long-dated borrowing costs as markets price in more inflation over the long term.

The European Central Bank has been pricing three rate hikes by year-end since March. The dollar remained firm against the yen following an intervention ‌worth an estimated $65 billion from ‌Tokyo just weeks ago to shore up the currency. It was last up 0.1% at 159.125 yen.