GLOBAL MARKETS-Bond yields jump as economy trumps central bank action
* U.S. and European bond yields surge in response to taper talk
* BoJ, ECB, BoE, Riksbank leave policy unchanged
* Dollar firms to hit six-week high vs yen
* Oil gains as developments on Syria awaited
LONDON, Sept 5 (Reuters) - U.S. and European government bond yields surged higher on Thursday as traders became convinced that central banks could do little to prevent higher market rates.
While oil prices held above $115 a barrel after the U.S. Senate voted to support a military strike on Syria, any move among investors to seek the traditional safety of government bonds was countered by expectations that the U.S. Federal Reserve could begin to wind down its huge monetary stimulus as early as this month.
That conviction is only likely to grow if Friday's U.S. employment report confirms a recovery in the job market.
Central banks have responded by attempting to talk down expectations of rate rises but have largely left loose policies unchanged despite data from China, Britain and the euro zone pointing to a global economic recovery gathering steam.
As widely expected the European Central Bank, the Bank of Japan, Sweden's Riksbank, and the Bank of England all left policy unchanged on Thursday.
"Markets are shrugging and saying 'you know what, we are in control of this and we are continuing on our path of normalising the overall level of interest rates'," said Wouter Sturkenboom, investment strategist at Russell Investments.
As a result the benchmark U.S. 10-year Treasury note yield hit its highest level since July 2011, peaking at 2.95 percent , up 5.4 basis points. The rise dragged the German government 10 year bond to a new 1-1/2 year high above 2 percent . British gilts also rose.
The prospect of higher rates spilling over to affect the rest of the world prompted Russia and China to warn at the G20 leaders' meeting in Russia that the end of the Fed's bond-buying programme could have a profound impact on the global economy.
In India, where the impact of higher U.S. Treasury yields has a dramatic effect on capital flows, the new central bank chief on Thursday unveiled a package to support the currency and the banking sector that sent the main NSE share index up 3.3 percent and boosting the rupee.
The rupee rose as high as 65.53 per U.S. dollar, pulling well away from a record low around 68.85 set last week.
The gain in Indian stocks and a slight rise in Tokyo's shares after the BOJ's decision to leave its massive stimulus unchanged as expected helped lift Asia equity prices by 0.6 percent, to near a three-week high.
The brighter outlook and the prospects of no change to loose European monetary policy lifted the region's shares by 0.2 percent at midday with the market cautious before ECB president Mario Draghi's news conference after the policy meeting.
"People are waiting for cues from the central banks, and there is just no real trend on the market at the moment," said Guillaume Dumans, co-head of research firm 2Bremans.
The euro last traded at $1.3215, little changed on the day and not far from a six-week low of $1.3138.
MSCI's world equity index was up 0.1 percent following a second day of gains on Wall Street spurred by another set of upbeat U.S. data, which included the strongest monthly rise in car sales during August since October 2007.
U.S. stock index futures pointed to further strong gains when trading on Wall Street reopens.
"Strong car sales in the U.S. again lifted market confidence in the economy, and lifted expectations that the U.S. Federal Reserve will start cutting back its stimulus this month," said Isao Kubo, an equity strategist at Nissay Asset Management.
The possible military strike against Syria in reaction to its alleged use of chemical weapons and the Fed's decision to reduce its stimulus were also dominating discussions at a meeting of leaders from the Group of 20 developed and developing economies in St Petersburg.
In a note prepared for the meeting, the IMF warned that emerging countries were particularly vulnerable to a tightening of U.S. monetary policy and some downside risks have become more prominent.
U.S. President Barack Obama meanwhile was expected to use the meeting to win international backing over Syria and this was keeping a floor under oil markets. Brent crude rose 41 cents to $115.32, while U.S. oil was up 57 cents to $107.80.