NEW YORK The yen slid to a 4-1/2-year low against the dollar on Friday, triggering a sell-off in oil and gold as well as safe-haven U.S. and German debt, after recent signs of strength in the U.S. labor market added to bullish sentiment on the dollar.
Wall Street surged at day's end, pushing both the Dow and the S&P 500 to record closing highs.
Data on bond holdings in Japan showed the Japanese were buying more foreign assets, and the yen's collapse reverberated throughout financial markets. Conflicting signals about how investors view the economic outlook added to the yen's wide impact.
The greenback rallied broadly as recent data indicating an improving U.S. jobs market sparked speculation the Federal Reserve may scale back monetary easing. The policy was designed to bolster the economy, and it also has lifted the stock market.
The firmer dollar pressured oil, as the strength of the dollar makes commodities more expensive for holders of other currencies. The fall in oil was intensified by rising supplies and doubts over the strength of China's economy.
"There are two fundamental themes. The first is that despite signs of slower U.S. growth here in the second quarter, the U.S. labor market continues to improve," said Marc Chandler, head of global currency strategy and Brown Brothers Harriman in New York.
"The second is the news reported in Tokyo ... that Japanese investors turned buyers of foreign bonds," he said, calling it an important signal for the "yen bears."
The bearish investors were already selling the yen on expectations that Japanese investors would sell as the Bank of Japan's stimulus measures displaced them from the local bond market, Chandler said.
The Japanese currency fell to 101.98 yen per dollar, the lowest since October 2008. The dollar was last at 101.56 yen, up 0.97 percent on the day.
With the Japanese currency breaching the 100 level, analysts expect the yen to fall further. Some see the dollar rising to 105 yen this summer and to 110 by the end of the year.
JAPAN'S LONG-AWAITED FORAY ABROAD
Overnight data showed that Japanese investors had bought 309.9 billion yen ($3.1 billion) in foreign bonds in the week through May 4 after purchasing 204.4 billion yen in the prior week, according to the Ministry of Finance. <JP/CAP>
Equities in Europe closed higher, while Wall Street stocks staged a late rally and all three major indexes posted gains for a third straight week.
German Bunds slid to their lowest level in over a month as Bund futures, which hit a record high of 147.20 last week, fell more than a point to a low of 144.43 and were on course for their biggest one-week fall since March 10.
Bund futures settled down 121 ticks at 144.66.
The benchmark 10-year U.S. Treasury note was down 23/32 in price to yield 1.893 percent.
The slump in the Japanese currency was sparked by a drop in weekly U.S. jobless claims data on Thursday, which added to evidence of a rapidly improving employment market first seen in the prior week's nonfarm payrolls report. ECONUS
The move was given a further push by the data on Japanese investors' foreign bond purchases. The data confirmed widespread expectations that the Bank of Japan's aggressive stimulus plans would result in a massive flight of money out of the country in a search for higher-yielding investments.
"We've had back-to-back good news in U.S. figures and you have to wind the clock back six to eight weeks to find the last time we had that," said Nick Parsons, head of market strategy at National Australia Bank.
"Once we got through 100 (yen) and the Japanese bond buying data came out, that added fuel to the fire," he said.
The yen's move came as finance ministers and central bankers of the Group of 7 countries gathered for a two-day meeting near London, to discuss ways to stimulate growth, with currency movements likely to be one of the main topics on the agenda.
Stocks on Wall Street gained as a rise in Google Inc (GOOG.O) and other technology shares offset a slide in energy shares.
Nvidia Corp (NVDA.O) and Priceline.com Inc (PCLN.O) rose a day after reporting quarterly results. Both companies beat profit expectations, even as Priceline gave a second-quarter outlook that disappointed.
"We're getting more constructive on the second half of the year as both the market and the economy are picking up," said Terry DuFrene, investment specialist for JP Morgan Private Bank in New Orleans.
"While it has caught us by surprise how much markets have come up, and we might see a decline of 5 percent, we don't see any meaningful pullback ahead," DuFrene said.
The Dow Jones industrial average .DJI closed up 35.87 points, or 0.24 percent, at 15,118.49. The Standard & Poor's 500 Index .SPX rose 7.03 points, or 0.43 percent, at 1,633.70. The Nasdaq Composite Index .IXIC gained 27.41 points, or 0.80 percent, at 3,436.58.
MSCI's world equity index .MIWD00000PUS, which tracks stocks in 45 countries, was down 0.07 percent, but ended a third week of gains at a five-year high.
The FTSEurofirst 300 index .FTEU3 of leading European shares closed up 0.35 percent at 1,233.49.
Yen exchange rates: link.reuters.com/fav65s
Yen futures positioning: link.reuters.com/qet48s
Asset returns in 2013: link.reuters.com/dub25t
Oil fell heavily on the firmer dollar, with the June contract for North Sea Brent falling to $101.45 a barrel before trimming some losses.
Brent crude oil settled down 56 cents at $103.91. U.S. crude eased 35 cents to settle at $96.04 a barrel.
Spot gold fell as low as $1,420.60 an ounce.
U.S. Comex gold futures for June delivery settled down $32 at $1,436.60 an ounce.
(Reporting by Herbert Lash; Editing by Leslie Adler)