GLOBAL MARKETS-Shares, dollar down after Iraq strikes, but off lows

* Shares (Frankfurt: DI6.F - news) cut losses, Bunds pare gains as Iraq concerns

settle

* Treasury yields hit 14-month low

* Oil trims gains

* U.S. stocks open slightly higher on energy lift

(Updates with U.S. market open, recasts, changes dateline,

previous LONDON, byline)

By Chuck Mikolajczak

NEW YORK, Aug 8 (Reuters) - Bond yields fell in key markets

worldwide on Friday as investors shifted to the safety of

government debt, spurred by U.S. President Barack Obama's

decision to authorize air strikes in Iraq, though most equity

markets recovered from overnight losses.

The U.S. 10-year hit its lowest yield since June 2013 and

Germany's 10-year Bund fell to another record low, closing in on

1 percent. Oil rose on concern about the threat to oil supplies

in Iraq.

Investors expect volatility to continue to rise, as the

uncertainty surrounding the ongoing conflict in Ukraine and

worsening conditions in Iraq will weigh heavily over the

weekend.

"People have been caught off guard. The geopolitical risks

have been treated as 'noise' by investors in the past few

months, but now they suddenly realise that it's much more than

just 'noise,'" said FXCM (NYSE: FXCM - news) analyst Vincent Ganne.

Obama said in an address that he authorized "targeted"

strikes to protect the besieged Yazidi minority and U.S.

personnel in Iraq. Hours after his statements, U.S. military

aircraft bombed Islamic State artillery attacking Kurdish forces

near Arbil, Iraq.

Yields on 10-year Treasuries and German Bunds

- dropped as low as 2.349 and 1.023 percent,

respectively. The drops marked a 14-month low in yields for the

U.S. note and a third straight record low for the German Bund.

Equity markets rebounded from their worst losses overnight,

with the MSCI All World Index down just 0.2

percent. Asian markets bore the brunt of the selling, with

Tokyo's Nikkei 225 losing 3 percent.

A broad index of European stocks was off 0.7

percent and Germany's DAX Index lost 0.4 percent,

though that was off the day's worst levels.

Wall Street managed to post modest gains. The S&P 500

gained 0.2 percent to 1,913.95.

The intensifying risks in one of the world's big

oil-producing countries jolted petroleum markets, sending U.S.

crude up more than $1 to $98.45 a barrel and Brent

to $106.39 before both trimmed gains. U.S. crude was

last up 22 cents to $97.56 while Brent was down 9 cents to

$105.35.

"The market will look very close at what happens next and

whether oil supplies from southern Iraq could be under threat,"

said Tetsu Emori, a commodity fund manager at Astmax Co Ltd in

Tokyo.

Fighting also resumed in Gaza between Palestinian militants

and Israel.

NATO called for Russia to "step back from the brink" of war

in Ukraine, while a Russian official said the nation would "make

all efforts" to de-escalate the conflict.

The dollar was off its lows but remained 0.2 percent

down having hit two-week trough of 101.49 against the

safe-haven Japanese yen.

(Additonal reporting by Tricia Wright in London; Editing by

Nick Zieminski)