GLOBAL MARKETS-U.S. stocks, bond yields rise on Fed taper expectations

Thu Dec 26, 2013 1:02pm EST

* Dow industrials set for 6th straight daily gain

* Treasury yields near two-year high of 3 percent

* U.S. jobless claims fall more than expected

* Dollar hits 5-year high vs. yen

By Nick Zieminski

NEW YORK, Dec 26 (Reuters) - U.S. equities and the dollar rose against the yen in holiday-thinned trading on Thursday, while Treasuries prices fell after strong economic data added to evidence of a recovering labor market that could free the Federal Reserve to continue withdrawing its stimulus.

The number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly a month, a hopeful sign for the labor market. Initial claims for state unemployment benefits decreased 42,000 to a seasonally adjusted 338,000, the Labor Department said.

"We will be able to muster stronger job growth in 2014," said Ryan Sweet, an economist at Moody's Analytics in West Chester, Pennsylvania.

Citing an improving labor market, the Federal Reserve this month said it would reduce its monthly $85 billion bond buying program by $10 billion starting in January.

The dollar rose to a five-year high against the yen on expectations the Fed will continue to withdraw its stimulus, while the Bank of Japan may ease further. The greenback rose as high as 104.84 yen, according to Reuters data, surpassing last week's high of 104.63 yen. It last stood at 104.73 yen, up 0.4 percent.

The Dow Jones industrial average was up 91.26 points, or 0.56 percent, at 16,448.81. The Standard & Poor's 500 Index was up 6.92 points, or 0.38 percent, at 1,840.24. The Nasdaq Composite Index was up 11.87 points, or 0.29 percent, at 4,167.28.

The advance put the Dow on track for its longest winning streak since March. Both the Dow and the S&P 500 closed at record highs on Tuesday.

U.S. benchmark Treasuries yields edged up to just below their two-year high of 3 percent in light trading as most investors stayed out of the market after the Christmas holiday. The U.S. bond market reopened after being closed on Wednesday, while major European markets stayed shut, keeping volume well below average.

The 10-year U.S. Treasury note was down 2/32 in price, its yield at 2.9905 percent.

A further rise in bond yields would push up long-term borrowing costs, taking steam out of the economic recovery - similar to what happened this past summer, analysts said.

"Other markets will take notice if we establish a foothold above 3 percent," said Rob Zukowski, senior technical analyst at 4Cast Ltd in New York.

The rise in yields this year has hurt the Treasuries market, which is on course for its second worst year since 1996, according to data from Bank of America Merrill Lynch.

Earlier, Tokyo's Nikkei share average climbed to a more than six-year high, driven by buying from retail investors. It is up 55.6 percent this year, on track for its best annual performance since 1972, driven by Japan's aggressive fiscal and monetary stimulus.

In other markets, Brent oil was little changed as French workers extended a strike at two refineries, which limited demand, while U.S. oil prices rose in choppy trade, underpinned by the positive U.S. jobs data.

Gold gained nearly 1 percent in thin trade but was still set for its biggest annual loss in three decades.

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