Stocks up, dollar firm as U.S. jobs data set to clear path for higher rates

[March 10, 2017]  By Vikram Subhedar

LONDON (Reuters) - Stocks rose, the dollar was on track for its fifth week of gains and crude oil rebounded slightly on Friday ahead of closely watched U.S. payrolls data which is expected to give the Federal Reserve the green light to raise interest rates next week.

Non-farm payrolls probably increased by 190,000 jobs last month while employers boosted wages for workers, according to a Reuters survey of economists.

Stocks on Wall Street were poised for a higher open with S&P 500 <ESc1> <SPc1> futures up 0.4 percent and trading near record highs.

A tighter labor market, stock market boom and rising inflation amid a strengthening global economy have left some economists expecting that the Fed could increase interest rates much faster than is currently anticipated by financial markets.

Investors face a busy economic and political calendar next week which sees, along with a Fed rate decision, a meeting of G20 finance ministers, a slew of Chinese economic data and the Dutch election.

The dollar has taken centerstage ahead of the G20 meeting in light of Donald Trump's protectionist stance on international trade.

"Global and local inflationary pressures could soon make markets reprice Fed rate hike expectations going into 2018 and beyond, which we think would be bullish for the USD," said Morgan Stanley forex strategists in a note to clients.

The dollar index <.DXY>, which measures the greenback's strength against a basket of major currencies, was little changed, as the euro <EUR=> extended its overnight gains, but held close to its highest levels since January.

The euro, and the regional banking index, enjoyed a lift after European Central Bank head Mario Draghi's suggestion on Thursday it was less necessary to prop up the market through ultra-loose monetary policy.

The euro zone's main gauge of borrowing costs was set for its biggest fortnightly rise in nearly two years on Friday as investors prepared for rate hikes in the United States and eventually Europe.

Investors now expect the ECB to raise interest rates by March 2018, according to money market pricing, while some banks are calling for multiple hikes next year.

BONDS TO EQUITIES

Optimism about an economic recovery in Europe gaining traction helped the regional benchmark equity index  claw back some of its weekly losses. The index rose 0.4 percent helped by financials and energy shares.

People are seen behind an electronic board showing stock prices after the New Year opening ceremony at the Tokyo Stock Exchange (TSE), held to wish for the success of Japan's stock market, in Tokyo, Japan, January 4, 2017. REUTERS/Kim Kyung-Hoon

Shares of Euro zone banks rose nearly two percent to their highest in more than a year while BT Group jumped more than 4 percent after the telecoms giant after ending a two-year row with the UK regulator.

Investors globally pumped money into stocks for the tenth straight week, according to the latest data from Bank of America-Merrill Lynch and fund tracker EPFR.

The MSCI All-Country World index is less than a percent below all-time highs.

Year-to-date equity fund inflows of $82 billion now outpace the $80 billion into bond funds, the data showed, further stoking talk of the "Great Rotation" out of fixed income into equities.

"For years bonds have lived on soft growth, low inflation and unprecedented policy support," Societe Generale strategist Ciaran O'Hagan said.

"With the global economy now in firm recovery, central banks are gradually unplugging life support - a reality bond investors still cannot bear watching."

In commodity markets, crude prices inched up after dropping to their lowest in more than three months in the previous session on worries about a global supply glut.

U.S. West Texas Intermediate crude was up 0.5 percent while Brent crude rose 0.4 percent.

Gold fell below the key level of $1,200 an ounce on Friday and was on track for its worst week in four months, pressured by a stronger dollar.

(Additional reporting by John Geddie and Kit Rees; Editing by Toby Chopra)

[© 2017 Thomson Reuters. All rights reserved.]

Copyright 2017 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.