By Saqib Iqbal Ahmed
NEW YORK (Reuters) - An index of world stock markets edged higher on Thursday as worries over the lack of clear signs of a resolution to the U.S.-China trade spat were offset by an assurance by Federal Reserve Chairman Jerome Powell that the U.S. central bank has the ability to be patient on monetary policy.
The dollar rebounded after hitting a three-month low, while U.S. Treasury prices erased early gains after a soft 30-year bond auction and as Powell said the U.S. central bank will "substantially" reduce the size of its balance sheet.
MSCI's all-country index <.MIWD00000PUS>, which came under some pressure after U.S. stocks briefly retreated following Powell's comments on the Fed balance sheet, recovered to trade up 0.11 on the day. Thursday marked the index's fifth straight session of gains.
Speaking at the Economic Club of Washington, Powell reiterated that the U.S. central bank has the ability to be patient on monetary policy given stable price measures. He downplayed predictions from policymakers suggesting interest rates would be raised twice more this year.
"The stock market is wanting to hear dovish speak from the Fed, whether it's Powell or the governors or the presidents," said Willie Delwiche, investment strategist at Baird in Milwaukee.
Stocks around the globe started Thursday weaker after China said three days of talks with the United States that wrapped up on Wednesday had established a "foundation" to resolve differences. But it gave few details on key issues at stake, including a scheduled U.S. tariff increase on $200 billion (£157 billion) worth of Chinese imports.
The trade war between the two economic giants has disrupted the flow of hundreds of billions of dollars of goods.
On Wall Street, stocks were up slightly, having shrugged off a hit to retail stocks after Macy's Inc <M.N> trimmed its holiday sales forecast. The S&P 500 retail index <.SPXRT> was 0.7 percent lower, and Macy's shares sank 18.4 percent.
The Dow Jones Industrial Average <.DJI> rose 49 points, or 0.21 percent, to 23,928.12, the S&P 500 <.SPX> gained 4.64 points, or 0.18 percent, to 2,589.6 and the Nasdaq Composite <.IXIC> added 11.96 points, or 0.17 percent, to 6,969.04.
The pan-European STOXX 600 <.STOXX> benchmark closed up 0.34 percent.
U.S. Treasury prices erased early gains and benchmark 10-year notes <US10YT=RR> shed 2/32 in price to yield 2.7314 percent, up from 2.728 percent late Wednesday.
The dollar rallied from three-month lows, with investors reducing bearish positions on the currency as they awaited resolution in the U.S.-China trade negotiations, the U.S. government shutdown and Britain's exit from the European Union.
The dollar index <.DXY>, tracking it against a basket of six major currencies, rose 0.35 percent to 95.549, after earlier dropping to a three-month trough.
In commodity markets, oil prices clung to their recent gains.
Brent crude <LCOc1> futures rose 24 cents to settle at $61.68 a barrel, a 0.39 percent gain. U.S. West Texas Intermediate (WTI) crude <CLc1> futures rose 23 cents to settle at $52.59 a barrel, a 0.44 percent gain.
Both benchmarks rose by around 5 percent the previous day.
Gold steadied near a more than six-month peak on Thursday, with spot gold <XAU=> little changed at $1,286.98 per ounce.
(Reporting by Saqib Iqbal Ahmed; Additional reporting by Lewis Krauskopf in New York; Editing by Bernadette Baum and Dan Grebler)