By Karen Brettell and Niket Nishant

Aug 18 (Reuters) - U.S. government bond yields eased slightly on Tuesday, though longer-dated yields remained near multi-year highs after the 30-year Treasury yield earlier touched a level not seen since 2007.

The move came as fears of an escalating Middle East ‌conflict stoked inflation worries and weighed on stocks. The Nasdaq Composite ended down 1.33%, the Dow Jones Industrial Average dipped 0.22% and the S&P ‌500 fell 0.69%.

Oil prices settled at their highest in more than three weeks after Iran said it would adopt a more offensive stance and the Strait of Hormuz would remain closed, while the ​United States ruled out extending a ceasefire.

Gains were limited, however, with Brent crude futures finishing up 15 cents, or 0.17%, at $91.02 a barrel, while U.S. West Texas Intermediate crude futures closed up 44 cents, or 0.52%, at $84.94 a barrel. Both contracts closed at their highest since July 24.

Treasury yields have risen despite soft U.S. economic data easing concerns about an imminent Federal Reserve rate hike. Traders now see just a 35% chance of a hike at the Fed's September meeting but 69% odds of an increase by ‌December.

A resurgence in inflation could renew expectations for a ⁠faster pace of rate hikes.

"We're living in this world where we're going to have supply shock after supply shock," said Will Compernolle, macro strategist at FHN Financial.

The costs of the ongoing Iran conflict are also adding to fears over the U.S. fiscal ⁠trajectory.

The yield on the U.S. 30-year Treasury bond was last down 1.78 basis points at 5.2922%, after reaching 5.3371%, the highest since 2007. Benchmark 10-year note yields fell 1.2 basis points to 4.712% and got to 4.7478%, the highest since January 2025. [US/]

The rise in U.S. yields coincided with Japanese government bond yields climbing to 30-year highs, raising concerns among analysts ​that ​as Japanese yields become more attractive, investors in the country — particularly pension funds and insurance companies — could ​begin shifting capital out of U.S. debt and into Japanese ‌bonds.

Such a shift would add further upward pressure on Treasury yields. Japan's 10-year bond yield was hovering just below the 3% threshold for the first time since the mid-1990s, while euro zone bond yields also sat near multi-year highs.

MARKETS TURN CAUTIOUS

Wall Street's main indexes hit their lowest in two weeks, pressured by losses in heavyweight technology stocks.

"There's nothing that can crack a momentum rally quite like interest rates moving higher and you're getting evidence of that today," said Tony Welch, chief investment officer at SignatureFD.

Elevated yields tend to weigh on equities by making stocks relatively less attractive to investors, and by raising borrowing costs for companies pouring money into capital-intensive ‌AI infrastructure.

The pan-European STOXX 600 index fell 0.69% and MSCI's gauge of stocks across the ​globe dropped 0.77%.

The CBOE Volatility Index, Wall Street's fear gauge, hit its highest in more than ​a week.

Investors are now turning their attention to Wednesday's release of the ​Fed's latest policy meeting minutes, as well as next week's Jackson Hole symposium, which will be closely watched for clues on how ‌policymakers are interpreting recent economic data.

"Given the reduced information content ​of the FOMC's policy statement and Fed chair (Kevin) ​Warsh's press conferences, the minutes from the FOMC meetings arguably have become more important in conveying the balance of views among policymakers," said Jonas Goltermann, chief markets economist at Capital Economics.

The Federal Open Market Committee is the Fed's interest rate-setting body.

In currencies, the dollar index, which measures the greenback ​against a basket of currencies including the yen and the ‌euro, rose 0.13% to 99.67, with the euro down 0.04% at $1.1574. Against the Japanese yen, the dollar strengthened 0.13% to 159.64.

Spot gold fell ​1.61% to $4,344.82 an ounce.

(Reporting by Karen Brettell, Douglas Gillison, Shashwat Chauhan, Purvi Agarwal, Niket Nishant and Gregor Stuart Hunter; Editing by Sonali ​Paul, Clarence Fernandez, Muralikumar Anantharaman, Gareth Jones, Sharon Singleton, Deepa Babington and Cynthia Osterman)