U.S. Markets closed

Dollar slips, shares rebound after U.S. jobs data

The London Stock Exchange is seen during ther morning rush hour in the City of London April 11, 2011. REUTERS/Toby Melville

By Herbert Lash

NEW YORK (Reuters) - The dollar slipped against the euro and global equity markets rebounded on Friday after data showed U.S. jobs growth slowed in August, raising the prospect that interest rates will stay low longer than investors had expected.

The dollar fell after data showed U.S. nonfarm payrolls grew by only 142,000 last month, far below the 225,000 forecast by analysts in a Reuters poll. The July figure was revised upward to 209,000.

Major U.S. stock indexes pared early losses to close higher, with the S&P 500 setting another record close, while Germany's DAX (.GDAXI) and Spain's IBEX (.IBEX) also gained.

MCI's<.MIWD00000PUS> all-country index of performance in 45 countries also cut losses to edge higher.

Investors took the surprisingly weak jobs data as a sign the Federal Reserve will not raise rates any time soon.

"What we saw today called off the dogs to some degree and took the heat down a notch or two from investors' concern about rate hikes," said Jim Russell, senior equity strategist at U.S. Bank Wealth Management in Cincinnati.

Mohamed El-Erian, chief economist at Allianz in Newport Beach, California, said although the payrolls report was disappointing, it was more solid in key components, such as improvement in the unemployment rate to 6.1 percent.

"All this will reinforce the Federal Reserve's 'steady as she goes' policy approach," El-Erian said.

The Dow Jones industrial average (.DJI) closed up 67.78 points, or 0.4 percent, to 17,137.36. The S&P 500 (.SPX) rose 10.06 points, or 0.5 percent, to 2,007.71 and the Nasdaq Composite (.IXIC) added 20.61 points, or 0.45 percent, to 4,582.90. It was the fifth week of gains for the three indexes.

In Europe, the FTSEurofirst 300 index (.FTEU3) of top regional shares pared losses to close down 0.35 percent at 1,396.02. MSCI's all-country index was up 0.06 percent.

The dollar retreated from a nearly six-year high against the yen and the euro recovered from a 14-month low against the greenback a day after a surprise European Central Bank rate cut.

The euro edged up 0.08 percent against the dollar at $1.2954 after shedding 1.6 percent on Thursday, its steepest fall in almost three years, following the ECB cut rates to record lows to avert deflation.

On the EBS trading system, the dollar last traded down 0.19 percent at 105.06 yen after it touched a nearly six-year high of 105.71 in Asian trading.

Yields on Italian, Irish and Spanish bonds hit all-time lows in a broad-based rally in euro zone debt spurred by the ECB's rate cuts and openness to a large-scale bond-buying program.

The 10-year U.S. Treasury note pared gains to trade 2/32 lower in price, pushing its yield up to 2.4569 percent.

Brent crude oil fell below $101 a barrel as a strong dollar depressed demand and the jobs data suggested the U.S. economy was growing more slowly than expected.

Oil prices on both sides of the Atlantic had fallen on Thursday as the ECB rate cut led to a spike in the dollar, making it more expensive for holders of other currencies to buy the dollar-denominated commodity.

Brent (LCOc1) settled down $1.01 at $100.82 a barrel. U.S. crude (CLc1) fell $1.16 to settle at $93.29 a barrel.

(Reporting by Herbert Lash; Additional reporting by Atul Prakash in London; Editing by Dan Grebler and James Dalgleish)