xBy David Randall

NEW YORK (Reuters) -World stocks rallied on Monday to their highest levels since mid-December after China reopened its borders while benchmark Treasury yields drifted lower as investors scaled back expectations for further rate hikes by the Federal Reserve.

The gains were broad across global equity markets, with Europe’s STOXX 600 near a one-month high and emerging market stocks up 2.4% on the day. MSCI’s broadest index of Asia-Pacific shares outside Japan rose to its highest in more than six months after China reopened its borders, bolstering the outlook for the global economy.

Wall Street’s benchmark indexes gave up broad earlier gains to finish mixed ahead of an expected speech by Fed Chair Jerome Powell on Tuesday and inflation data on Thursday.

What happens to claims and the labor market will also help determine whether the forthcoming ‘landing’ is soft or hard,” said Alex Pelle, U.S. economist at Mizuho Securities.

A soft landing is the ideal Fed policy goal after raising interest rates, a situation in which inflation slows but there are not enough job losses to trigger a recession.

Global equities surged on Friday following U.S. jobs data that showed a jump in the workforce and easing wage growth. This, along with data pointing to a U.S. service sector contraction, was interpreted by investors as an indication the Fed could become less hawkish.

On Wall Street, the Dow Jones Industrial Average fell 112.96 points, or 0.34%, to 33,517.65, the S&P 500 lost 2.99 points, or 0.08%, to 3,892.09 and the Nasdaq Composite added 66.36 points, or 0.63%, to 10,635.65.

MSCI’s gauge of stocks across the globe gained 0.71% after being up as much as 1.5% earlier in the day.

Money markets were pricing in a 25% chance of a half-point U.S. rate hike in February, down from around 50% a month ago. Investors will look to Thursday’s CPI data for further clues as to the Fed’s next move.

The U.S. dollar index was down around 0.7%, near its lowest in seven months, after it dropped 1.2% on Friday.

In bond markets, European government bond yields rose in a reversal after the previous weeks’ sharp falls. Germany’s benchmark 10-year government bond yield was up 4 basis points at 2.252%.

The yield on 10-year Treasury notes was down 4.1 basis points to 3.530%. Bond yields move in the opposite direction of prices.

Investors are operating under the assumption that once the Fed pauses, the only next possible outcome would be a cut – and if futures pricing is to be believed, the market sees the first cuts by year-end,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

U.S. crude recently rose 1.41% to $74.81 per barrel and Brent was at $79.73, up 1.48% on the day.

(Reporting by David Randall; Editing by Susan Fenton, Will Dunham and Chris Reese)