By Caroline Valetkevitch
NEW YORK (Reuters) - Oil prices climbed to just shy of $50 a barrel on Wednesday after a sharper-than-expected fall in crude inventories, lifting energy shares and world stock markets.
Growing bets on a possible Federal Reserve rate increase as early as in June or July reduced demand for U.S. government debt.
Investors' expectations for higher borrowing costs have risen since last week's minutes from the central bank's April meeting signaled a June increase was on the table. Comments from policymakers and upbeat U.S. economic data in recent days have supported those views.
"What you're seeing is a recognition that this is going to happen and investors are getting more comfortable with it," said Kurt Brunner, a portfolio manager at Swarthmore Group in Philadelphia. "There's a recognition that economic growth is okay."
Energy Information Administration data showed U.S. crude stockpiles fell last week as imports dropped and refineries cut output. Brent settled up $1.13 at $49.74, while
U.S. crude's settled 94 cents higher at $49.56.
World stocks markets rose for a second straight session, helped by energy shares including Chevron , up 1.6 percent, and bank shares, which benefit from higher interest rates.
The Dow Jones industrial average <.DJI> closed up 145.46 points, or 0.82 percent, to 17,851.51, the S&P 500 <.SPX> gained 14.48 points, or 0.7 percent, to 2,090.54 and the Nasdaq Composite <.IXIC> added 33.84 points, or 0.7 percent, to 4,894.89.
Combining Tuesday and Wednesday's performances, the S&P 500 gained 2 percent, its strongest two-day run since early March.
MSCI's all-country world stock index <.MIWD00000PUS> rose 0.9 percent, while the pan-European FTSEurofirst 300 index <.FTEU3> of leading regional stocks ended up 1.3 percent, touching its highest level since late April.
Banks in Europe were buoyed after a new debt deal for Greece seemed to head off the risk of another round of uncertainty over its finances and even its future in the euro zone.
U.S. Treasury prices fell, with short- and medium-dated yields hitting 10-week highs, helped by the solid advance in Wall Street stocks.
Early in the U.S. session, the two-year yield and five-year yield reached 10-week highs at 0.938 percent and 1.424 percent, respectively.
The U.S. dollar fell from near a 10-week high against the euro and rose just slightly against the yen as investors took profits on the greenback's recent gains.
The euro was last up 0.17 percent against the dollar at $1.1161, while the dollar was last up just 0.11 percent against the yen at 110.10 yen .
Investors await Fed Chair Janet Yellen's appearance at a panel at Harvard University on Friday, the same day as they take in a revised estimate of U.S. first-quarter growth.
Gold dropped to a seven-week low amid the Fed expectations. Spot gold was down 0.2 percent at $1,223.93 an ounce, off an earlier low of $1,217.25, the lowest since April 6.
(Additional reporting by Richard Leong, Sam Forgione and Saqib Ahmed in New York and Noel Randewich in San Francisco; Editing by Hugh Lawson and Nick Zieminski)