GLOBAL MARKETS-Stocks, bonds jump after Summers drops Fed bid

* U.S. dollar falls as Summers withdraw from Fed

consideration

* View that monetary policy to stay easy for longer drives

moves

* U.S. equity gains limited by Apple (NasdaqGS: AAPL - news) , budget comments from

Obama

By Ryan Vlastelica

NEW YORK, Sept 16 (Reuters) - Stocks and bonds on major

markets rose on Monday after former U.S. Treasury Secretary

Lawrence Summers withdrew from consideration to be the next

chairman of the Federal Reserve, leading investors to believe

U.S. monetary policy might stay looser for longer.

Signs of progress in reducing tensions in the Middle East,

after a Russia-brokered deal on Syria's chemical weapons also

helped to support stocks.

Summers' surprise decision on Sunday came just ahead of the

Fed's policy meeting on Tuesday and Wednesday, when the U.S.

central bank is expected to begin to scale back its asset

purchases from the current pace of $85 billion a month.

With the withdrawal of Summers, investors wagered that U.S.

monetary policy would stay easier for longer if the other

leading candidate for Fed chair, Janet Yellen, the Fed's current

vice chair, should get the job. Ben Bernanke's term as Fed

chairman expires in January.

The Dow Jones industrial average was up 117.88

points, or 0.77 percent, at 15,493.94. The Standard & Poor's 500

Index was up 9.62 points, or 0.57 percent, at 1,697.61.

The Nasdaq Composite Index was down 4.34 points, or 0.12

percent, at 3,717.85.

The Nasdaq stock index rose for much of the session, but

turned negative in afternoon trading, pressured by a 3.2 percent

decline in Apple Inc shares. The Dow and S&P500 also

ended off their highs of the session after President Barack

Obama stood firm in warning Republicans in Congress he will not

negotiate over an extension of the U.S. debt ceiling as part of

a budget fight.

"We are still riding positively on the Summers announcement,

however with the debt ceiling deadline less than a couple of

weeks away, there will be heightened sensitivity to it," said

Andre Bakhos, managing director at Janlyn Capital LLC in

Bernardsville, New Jersey.

"We are still up and the market is still riding a wave

higher and until there is something tangible to create a sense

of fear, the trend remains solid."

European shares rose 0.7 percent while the MSCI

all-country world equity index rose 0.8 percent.

With Summers' withdrawal, it was even possible a first Fed

interest rate rise could be pushed out to 2016, rather than 2015

as currently expected, said Chris Rupkey, chief financial

economist at Bank of Tokyo-Mitsubishi UFJ. Going by Yellen's

past speeches, Rupkey said she would probably prioritize

reducing unemployment.

"Yellen looks like the clear front-runner and seems to be

the public's popular choice," Rupkey said. "The Fed will shoot

to lower the unemployment rate to the full employment level, and

this means the new target could be more (like) 5.5 percent, not

6.5 percent."

The benchmark 10-year U.S. Treasury note was up

4/32, with the yield at 2.8736 percent. German Bunds

tracked the moves and were last at 1.887 percent,

well down on last week's peak of 2.0 percent.

The more distant Eurodollar interest rate contracts rallied

as the market pared back expectations for how quickly the Fed

might finally start to tighten policy, as opposed to just

tapering its bond-purchase program.

Contracts from late 2014 out to 2016 all made double-digit

gains suggesting a hike was now considered more likely

in 2015 rather than in late 2014.

DOLLAR SLIDE

The U.S. dollar index slipped 0.2 percent to 81.28,

near an intraday trough of 81.029, its lowest level since Aug.

21. It fell 0.2 percent against the yen while the euro

rose 0.3 percent to $1.3336. Liquidity in the yen was

lacking, with Japanese markets closed for a holiday on Monday.

In the latest U.S. economic data, industrial output rose 0.4

percent in August, as expected, while manufacturing output rose

0.7 percent, a slightly faster rate than had been forecast.

MSCI (NYSE: MSCI - news) 's broadest index of Asia-Pacific shares outside Japan

gained 1.6 percent overnight as South Korean

shares added 1 percent, Australia's rose 0.5

percent and Indonesian stocks jumped 3.4 percent.

PUSHING OUT THE HIKE

Investor (Other OTC: IVSBY - news) sentiment was also underpinned by Saturday's deal

between Russia and the United States to demand that Syrian

President Bashar al-Assad account for his chemical arsenal

within a week and let international inspectors eliminate all the

weapons by the middle of next year.

Emerging market stocks were up 1.4 percent and

most emerging Asian currencies were on the front foot, with

India's rupee leading the charge. Investors have pumped much of

the cheap money from the Fed into emerging markets.

Gold fell 1.3 percent, while Brent crude lost

1.8 percent to $109.67 a barrel and U.S. crude futures

sank 1.9 percent to $106.21 per barrel.