A surprisingly strong US jobs report lifted the dollar to a five-and-a-half year high against a basket of currencies, while stocks climbed, led by financial shares.
US bond prices dropped, with the yield on US 2-year Treasuries hitting the highest since May 2011, as investors priced in a US interest rate hike by mid-2015.
The Labour Department data showed US employers hired more workers in November than during any month in nearly three years.
Non-farm payrolls surged by 321,000 last month, the most since January of 2012 and above forecasts for 230,000 new jobs.
The unemployment rate held at a six-year low of 5.8 per cent.
“It is unequivocally bullish on the US economy,” said Anthony Valeri, fixed-income strategist at LPL Financial in San Diego. “We’ll need more evidence, but it definitely contradicts the low-yield environment we have been in.”
US short-term interest-rate futures contracts dropped as traders bet the Federal Reserve would raise interest rates in July 2015 – earlier than formerly thought.
The robust US report caused the yield on US 2-year Treasuries to rise nearly 9 basis points. The yield curve also flattened, with the differential between the five-year note and the 30-year bond falling to its lowest since January 2009.
The benchmark 10-year US Treasury note as down 20/32, the yield at 2.326 per cent.
The dollar rose against a basket of currencies to its highest since March 2009. It also gained against the yen to its highest since 2007.
On Wall Street, the Dow Jones industrial average rose 87.11 points, or 0.49 per cent, at 17,987.21. The Standard & Poor’s 500 Index was up 7.10 points, or 0.34 per cent, at 2,079.02.
The Nasdaq Composite Index was up 19.25 points, or 0.40 per cent, at 4,788.69.
Stock traders were balancing the encouraging fundamental strength in the US economy with the prospect of a rate rise.
Financial shares led gains, with the S&P financial index up 1.2 per cent as higher interest rates are expected to boost earnings in the sector. Utilities, a dividend play, lost ground as Treasuries yields rose. The S&P utility index was down 1.1 per cent. MSCI’s global share index was up 0.2 per cent, while an index of European shares ended up 1.8 per cent as a weaker euro boosted exporters.
The rally follows heavy declines on Thursday after the European Central Bank said a decision about further stimulus would be made next year.
Gold dropped nearly one per cent, suffering from the dollar’s strength, while Brent and US crude continued their slide.
Spot gold was at $1,191.05 an ounce. Brent crude was down 35 cents at $69.29 barrel, while US crude oil futures were down 73 cents at $66.08.