San Francisco Frontiers - Stocks mostly drop as Mideast hopes dim, interest rates rise

While soft US data this month has eased concerns that the Federal Reserve will hike interest rates soon, traders still expect inflation to remain high for some time as the Middle East crisis drags on and crude stays stuck around $90 a barrel.

That has pushed up long-term US Treasury yields to levels not seen since June 2007 -- just before the global financial crisis exploded -- with rising US borrowing and massive corporate bond issuance to fund AI investments adding to the pressure.

In France, the 30-year yield reached its highest level since 2008 on Tuesday as European borrowing costs surged.

European equities mostly fell around midday, with Frankfurt and Paris both lower. But London -- which has more major energy companies in its indexes -- was supported by higher oil prices.

US stock futures were lower in pre-market trading in New York.

"A sharp rise in government bond yields around the world may start to pose a threat to equity valuations and make life even trickier for deeply indebted nations and policymakers," said Neil Wilson, investor strategist at Saxo UK.

"A significant part of the problem in the very near term is oil and energy prices," he added.

Both main crude contracts remained elevated on Tuesday, after gaining the previous day, with benchmark Brent sitting around $90 a barrel.

The chances of an agreement between Washington and Tehran remain thin after US President Donald Trump said he would not extend a 60-day truce and Iran called it "irrelevant" because the United States had violated it early on.

Trump said earlier Iranian officials "want to make a deal, but they're not going to make the kind of a deal that I feel is necessary".

He also threatened to bomb Oman if it "gets in the way" of an agreement, referring to ongoing talks between Muscat and Tehran on control of the Strait of Hormuz.

Washington appears happy to play a long game, which investors fear could mean prices will stay higher for some time.

Asian stocks mostly fell following losses on Wall Street.

Tokyo was off more than two percent, while Seoul and Taipei were down more than one percent.

However, Hong Kong and Shanghai edged higher.

- Key figures at around 1110 GMT -

London - FTSE 100: UP 0.1 percent at 10,727.13 points

Paris - CAC 40: DOWN 0.5 percent at 8,541.28

Frankfurt - DAX: DOWN 0.3 percent at 26,261.23

Tokyo - Nikkei 225: DOWN 2.5 percent at 67,460.73 (close)

Hong Kong - Hang Seng Index: UP 0.1 percent at 25,471.15 (close)

Shanghai - Composite: UP 0.2 percent at 3,990.30 (close)

New York - DOW: DOWN 0.5 percent at 53,459.78 (close)

West Texas Intermediate: UP 0.5 percent at $84.92 per barrel

Brent North Sea Crude: DOWN 0.1 percent at $90.81 per barrel

Euro/dollar: DOWN at $1.1577 from $1.1579 on Monday

Pound/dollar: DOWN at $1.3525 from $1.3545

Dollar/yen: UP at 159.74 yen from 159.46 yen

Euro/pound: UP at 85.59 pence from 85.50 pence

M.Gonzalez--SFF