U.S. jobs data lifts stocks, bonds; sterling rallies

By Richard Leong

NEW YORK (Reuters) - An April rebound in U.S. jobs growth boosted Wall Street and supported the dollar on Friday, while a surprise Conservative victory cast away fears of a hung British Parliament and sparked a rally in sterling and European stock markets.

Global bond markets recovered for a second day, focusing on weak aspects of the latest U.S. jobs report, which may cause the Federal Reserve to be even more cautious toward ending its near- zero interest rate policy later this year.

Oil prices fell, erasing their early gains tied to data that showed a strong rise Chinese crude imports.

Gold edged higher following two days of losses as lower bond yields revived some appeal of holding the precious metal.

The April U.S. jobs data showed a solid 223,000 increase after a disappointing March, when hiring slowed sharply due partly to tough weather. The unemployment rate dropped to 5.4 percent in April, near a seven-year low.

The April hiring snapback, however, was less impressive after a further downward revision of March's weak reading to 85,000. The perception of the April data was also undercut by a meager 0.1 percent rise in average hourly earnings.

Analysts and traders reckoned the April jobs figures put the Fed on track for a rate increase later this year and said it may take years before bringing rates toward a forecast 3.75 percent.

"They have the jobs picture the way they want it, they just don't have the inflation, so that kind of throws a question mark," said Randy Frederick, managing director trading and derivatives with Charles Schwab (NYSE:SCHW) in Austin.

U.S. short-term interest-rate futures implied traders see a 51 percent chance for the first Fed rate hike in December, based on CME FedWatch.

That Fed outlook sparked a rally in U.S. Treasuries, sending benchmark yields further below the year's peaks set earlier this week in a dramatic global bond market rout.

The 10-year U.S. Treasuries note was up 18/32 in price, the yield at 2.1191 percent, while the German 10-year Bund yield was last at 0.543 percent, down 5 basis points from late on Thursday.

In late morning U.S. trading, the Dow Jones industrial average was up 261.15 points, or 1.46 percent, at 18,185.21. The Standard & Poor's 500 Index was up 27.22 points, or 1.30 percent, at 2,115.22. The Nasdaq Composite Index was up 63.97 points, or 1.29 percent, at 5,009.52. (N)

European bourses rallied after the U.K.'s Conservative Party was set to govern Britain for another five years, erasing worries of a hung parliament.

The FTSEurofirst 300 index of top pan-European shares jumped 2.7 percent to 1,589.72 with Britain's FTSE 100 up 2.0 percent. (EU)

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Earlier, Tokyo's Nikkei closed up 0.45 percent. (T)

The MSCI world equity index, which tracks shares in 45 nations, rose 1.35 percent, to 439.13.

In the currency market, the pound reached a 10-week high against the dollar following the surprise Conservatives win. It was last up 1 percent at $1.5396.

The greenback fared better against other major currencies. The dollar index rose 0.11 percent to 94.738 in the wake of the U.S. jobs data and disappointing German trade and industrial output figures.

Brent crude was last down 57 cents, or 0.8 percent, at $64.99 a barrel. U.S. crude was last up 13 cents, or 0.2 percent, at $59.07 per barrel.