GLOBAL MARKETS-Stocks cut gains as U.S. legislators support Syria action

* U.S. stocks trim early gains; Microsoft (NasdaqGS: MSFT - news) slumps after Nokia (Xetra: 870737 - news)

deal

* Treasury bond selling resumes

* U.S. manufacturing sector expands

* U.S. dollar hits six-week high

By Caroline Valetkevitch

NEW YORK, Sept 3 (Reuters) - World stock markets were up

slightly on Tuesday but cut gains after U.S. congressional

leaders voiced support for military intervention in Syria, while

bond yields rose and the dollar gained on strong U.S. data.

Wall Street stocks rallied at the opening after President

Barack Obama said over the weekend that he would seek approval

from Congress for a Syria strike, delaying the threat to Middle

East stability and oil supplies. The market pulled back after

comments from Republican House Speaker John Boehner expressing

support for action.

"Syria is the key thing facing markets, and stocks don't

know what to expect when there's geopolitical uncertainty,

especially with respect to the Middle East," said Mark Martiak,

senior wealth strategist at Premier Wealth/First Allied

Securities in New York.

"All you know is that you can expect volatility, and that's

why we're seeing stocks come off their highs."

Data showing U.S. manufacturing activity growth hit its

fastest pace in more than two years helped the dollar and

boosted U.S. bond yields. The data bolsters expectations the

Federal Reserve will begin to reduce bond purchases when it

concludes its meeting on Sept. 18.

The U.S. Congress returns from its summer recess on Sept. 9,

and will vote on authorizing a strike on Syria. While Obama has

been pushing Congress to back his plan, passage is by no means

certain.

Nancy Pelosi, Democratic leader in the House of

Representatives, said she believes Congress will support a

resolution authorizing the use of U.S. military force against

Syria.

On Wall Street, where markets were closed Monday for the

Labor Day holiday, the Dow Jones (DJI: ^DJI - news) industrial average was

down 19.82 points, or 0.13 percent, at 14,790.49. The Standard &

Poor's 500 Index was up 1.11 points, or 0.07 percent, at

1,634.08. The Nasdaq Composite Index was up 7.27 points,

or 0.20 percent, at 3,597.14.

MSCI (NYSE: MSCI - news) 's world equity index, which tracks

shares in 45 countries, was up 0.2 percent, while European

stocks ended down 0.4 percent.

Shares of Microsoft fell 5.6 percent to $31.51

after it announced a $7.2 billion bid for the phone business of

once-dominant Finnish manufacturer Nokia (Stockholm: NOKI-SEK.ST - news) . U.S. shares

of Nokia shot up 30 percent to $5.06 in heavy

volume.

U.S. TREASURY SELLOFF RESUMES

The stronger U.S. data, combined with good data on the

manufacturing sector from the eurozone and China published on

Monday, caused selling in the U.S. bond market to resume.

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

down 18/32, its yield at 2.854 percent.

The yield reached as high as 2.902 percent earlier, roughly

3 basis points below a 25-month high recorded on Aug. 22,

according to Reuters data.

China's non-manufacturing purchasing managers' index dropped

slightly to 53.9 last month from July's 54.1. But it remained

solidly in expansion territory and suggested recent government

measures are supporting the economy.

Traders expect the Fed to start reducing its $85

billion-a-month stimulus program at its Sept. 17-18 policy

meeting unless U.S. payroll numbers due on Friday fall

considerably short of forecasts.

The U.S. dollar jumped to a six-week high against major

currencies after U.S. manufacturing activity data.ID:nL2N0GZ0V9]

While expectations of a reduction in Federal Reserve bond

purchases support the dollar, a near-term withdrawal of Fed

stimulus would weigh on stocks, particularly those in emerging

markets that have come under pressure in recent months on

expectations of capital outflows.

The dollar index hit a high of 82.505, its highest since

July 22. It last traded at 82.367, up 0.3 percent on the

day.

Australia's dollar bounced more than half a cent as

its central bank kept interest rates at a record low 2.5

percent, as expected, on Tuesday.

OIL GAINS

Brent crude oil futures rose more than $1 per barrel as U.S.

lawmakers voiced support for military action against Syria. Oil

prices also drew support from the improving economic data in the

United States and China and concerns over crude oil supply.

Brent crude was up $1.38 to $115.71 a barrel. It hit

a session high of $115.87. U.S. oil reached $108.25, up

60 cents from Friday's settlement. There was no Monday

settlement for the U.S. benchmark due to the U.S. Labor Day

holiday.

Rising crude price helped to lift gold. Spot gold was

up 0.8 percent at $1,405.06 an ounce.