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Dollar hits seven-month high on jobs data; oil slumps

A woman counts her U.S. dollar bills at a money changer in Jakarta June 13, 2012. REUTERS/Beawiharta

By Herbert Lash

NEW YORK (Reuters) - The dollar jumped to a seven-month high on Friday, pushing oil prices lower, and short-term U.S. bond yields rose to the highest in five years after strong U.S. jobs data bolstered expectations the Federal Reserve will raise interest rates in December.

Nonfarm payrolls increased 271,000 in October, the largest gain since last December, while average hourly earnings rose a respectable 9 cents, the U.S. Labor Department said. The unemployment rate fell to 5.0 percent, the lowest since April 2008 and in a range many Fed officials consider to be full employment.

The robust report boosted the likelihood the Fed will raise rates before year's end, which would be the first increase in almost a decade and end seven years of easy monetary policy.

"This is a blow-out number," said Kevin Giddis, head of fixed-income capital markets at Raymond James in Memphis, Tennessee. "There's a pretty strong feeling that the Fed is going to hike rates a quarter of a point in December."

The dollar index (.DXY) of six major trading currencies hit a high of 99.345, its strongest since mid-April. It was last up 1.26 percent at 99.170.

Kathy Lien, managing director at BK Asset Management in New York, said: "You're going to see a renewed appetite for U.S. dollars."

The euro fell to $1.708 (EUR=), its lowest since April, and last traded down 1.31 percent at $1.0738.

The dollar rose to 123.26 yen (JPY=), its highest since Aug. 21, and last traded at 123.21, up 1.21 percent.

Oil prices fell for a third straight day, posting their third weekly decline in four, as the strong dollar makes commodities denominated in the greenback more expensive to holders of other currencies.

Brent (LCOc1), the global benchmark, settled down 56 cents at $47.42 a barrel. U.S. crude (CLc1) slid 91 cents to settle at $44.29.

Yields on U.S. government debt soared.

U.S. two-year (US2YT=RR) yields hit 0.958 percent, their highest since May 2010, on the expectations of a December rate hike. Benchmark 10-year yields hit a three-month high of 2.349 percent, and last traded to yield 2.3289 percent.

Global equity markets were mixed. European shares were higher, but a measure of worldwide stock performance was lower. U.S. stocks mostly rebounded after trading lower earlier in the day.

MSCI's all-country world index <.MIWD00000PUS> fell 0.47 percent.

European stocks rose on the stronger dollar, which lifted export-oriented shares like autos. The pan-European FTSEurofirst 300 index (.FTEU3) closed up 0.27 percent at 1,498.99, while Germany's export-heavy DAX (.GDAXI) gained 0.92 percent.

The Dow Jones industrial average (.DJI) rose 46.9 points, or 0.26 percent, to 17,910.33. The S&P 500 (.SPX) fell 0.73 point, or 0.03 percent, to 2,099.2 while the Nasdaq Composite (.IXIC) added 19.38 points, or 0.38 percent, to 5,147.12.

Stock investors have been torn by the prospect of a Fed tightening and the economic outlook, said Brad McMillan, chief investment officer at Commonwealth Financial in Waltham, Massachusetts.

But the unemployment report shows that a recent soft spot in jobs data did not indicate a trend, McMillan said.

"The economy is now strong enough to take a slowdown and to continue to move forward strongly," he said, "and that's actually very encouraging for the next 12 to 18 months or so because it says we got some very strong momentum here."

(Reporting by Herbert Lash; Additional reporting by Sam Forgione; Editing by Leslie Adler and James Dalgleish)