* Wall Street opens higher on earnings optimism
* Rate expectations send Bund yield above 3.5 percent
* Yen comes off recent lows after latest aftershock (Adds details, updates prices, changes byline, dateline, previous LONDON)
By Wanfeng Zhou
NEW YORK, April 11 (Reuters) - U.S. stocks edged higher on Monday on hopes for a strong corporate earnings season, while crude oil prices retreated on prospects of a Libyan peace agreement.
Aluminum maker Alcoa
The yen rebounded from an 11-month low against the euro and a 2-1/2 year trough versus the Australian dollar, after the latest earthquake, with a magnitude 6.6, prompted some investors to unwind riskier bets often funded by cheap borrowing in the Japanese currency.
"The good news for bulls as we enter earnings season is that expectations appear to be low," said Todd Salamone, senior vice president of research at Schaeffer's Investment Research in Cincinnati, Ohio.
The Dow Jones industrial average <.DJI> was up 42.46 points, or 0.34 percent, at 12,421.68. The Standard & Poor's 500 Index <.SPX> was up 1.96 points, or 0.15 percent, at 1,330.15. The Nasdaq Composite Index <.IXIC> was off 3.65 points, or 0.13 percent at 2776.95.
World stocks as measured by MSCI <.MIWD00000PUS> were flat, with emerging markets <.MSCIEF> off 0.5 percent.
Although the world economy is fairly robust, there are growing expectations among investors that accompanying higher commodity prices will drive up inflation and prompt central banks to tighten monetary policy sooner.
European stocks fell The FTSEurofirst 300 <.FTEU3> index of top European shares was down slightly.
Brent crude oil earlier fell by more than $1 on Monday to below $125 but has since retraced some of its losses moving above $126 a barrel and U.S. crude futures slipped under $112, giving back some ground after Friday's strong rally.
The African Union said Libyan leader Muammar Gaddafi had accepted a roadmap to end the civil war in Libya, including an immediate ceasefire, but an opposition representative said it would only work if Gaddafi left power.
ICE Brent crude for May
YEN GAINS
The euro touched its highest against the yen since May 2010
of 123.33 yen
Traders said speculator positioning and some technical indicators suggested that recent rallies in the euro and the Australian dollar against the yen could pause in the short run, with the latest in a series of quakes being used by some to book profits.
The euro fell 0.2 percent versus the dollar to $1.4450
The dollar rebounded after steep losses on Friday, as the U.S. government averted a potential shutdown, although analysts said the focus on the debt ceiling debate could limit the greenback's gains.
"We're having some sort of relief rally after the U.S. government did not shut down as feared," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.
Expectations of another rise in European Central Bank interest rates by July kept the euro close to recent highs and pushed euro zone government bond prices lower.
German Bund yields
The ECB raised its benchmark rate by 25 basis points last week to 1.25 percent, the first hike since 2008, and used language suggesting that another rise is in the pipeline.
(Additional reporting by Jeremy Gaunt, Saikat Chatterjee, Blaise Robinson and Anirban Nag in London; Gertrude Chavez and Angela Moon in New York) (Editing by Theodore d'Afflisio)