GLOBAL MARKETS-Progress in U.S.-China trade talks sparks world stock rally

(Updates through midday U.S. trading.)

By David Randall

NEW YORK, Feb 15 (Reuters) - Progress in the U.S.-China trade talks helped send world stock markets broadly higher on Friday and pulled investors out of the safety of government bonds.

Europe's broad Stoxx 600 index rallied 1.4 percent. In midday trading on Wall Street, the Dow Jones Industrial Average rose 359.04 points, or 1.41 percent, to 25,798.43, the S&P 500 gained 24.12 points, or 0.88 percent, to 2,769.85 and the Nasdaq Composite added 35.31 points, or 0.48 percent, to 7,462.26.

China and the United States reached a consensus in principle on some key issues during the talks, China's state news agency Xinhua said on Friday. Negotiations will continue next week in Washington as investors hope for an end to the trade war between the world's two largest economies.

"The next potential steps in the U.S. protectionist push could be pivotal for the global outlook," Bank of America (Swiss: BAC-USD.SW - news) Merrill Lynch economists wrote in a note. "With (Other OTC: WWTH - news) the trade war already starting to hurt the U.S., we expect the Trump Administration to pull its punch."

MSCI (Frankfurt: 3HM.F - news) 's gauge of stocks across the globe gained 0.65 percent. The index is up nearly 9 percent for the year.

Emerging markets were set for their first back-to-back weekly loss since late last year. The MSCIEF index of emerging- market stocks dropped 0.7 percent, leaving it up approximately 7.6 percent for the year.

Though there were signs of progress in the trade discussions, some investors remained cautious on whether tariffs would soon be eliminated.

"We expect that the longer-term direction of tariffs on imports from China is likely to be downward, but we expect this to be a gradual process and believe that some of the recently imposed tariffs might still be in effect through the 2020 election," economists at Goldman Sachs (NYSE: GS-PB - news) wrote in a note.

The broad stock rallies helped pull investors out of the safety of government bonds, sending yields higher. Benchmark 10-year U.S. Treasury notes last fell 3/32 in price to yield 2.6698 percent, from 2.659 percent late on Thursday.

U.S. President Donald Trump was expected to sign a bill Friday that would prevent another partial federal government shutdown by funding several agencies that otherwise would have closed on Saturday (Shenzhen: 002291.SZ - news) morning.

The dollar index rose 0.06 percent, with the euro down 0.24 percent to $1.1272.

Crude oil reached 2019 highs above $65 per barrel after OPEC-led supply cuts and a bigger-than-expected cut by Saudi Arabia this week encouraged investors.

The global Brent benchmark gained 2.2 percent to $66.01 per barrel. It has risen over 4.5 percent this week.

U.S. crude rose 2.1 percent to $55.58 per barrel.

(Reporting by David Randall; Editing by Dan Grebler and Susan Thomas)