GLOBAL MARKETS-Bond prices jump, stocks muted after weak U.S. jobs data

Fri Jan 10, 2014 9:43am EST

* U.S. jobs market surprisingly weak in December

* U.S. Treasury bond yields fall, 10-yr note yield falls below 2.90 pct

* Chinese exports miss forecasts, but imports up strongly

* Gold heads for flat week after best run since October

By David Gaffen and Marc Jones

NEW YORK/LONDON, Jan 10 (Reuters) - U.S. bond prices jumped and global equity markets pared gains on Friday, after a surprisingly weak month for jobs growth in the United States that was somewhat affected by bad weather.

U.S. nonfarm payrolls rose just 74,000 in December, the smallest increase in nearly three years and far below the 196,000 forecast by economists. The unemployment rate fell 0.3 percentage point to 6.7 percent but this in part reflected people leaving the labor force.

U.S. stocks opened slightly higher, though equity futures initially had been knocked down by the jobs numbers. The Dow Jones industrial average rose 19.2 points or 0.12 percent, to 16,463.96, the S&P 500 gained 2.67 points or 0.15 percent, to 1,840.8 and the Nasdaq Composite added 12.395 points or 0.3 percent, to 4,168.589.

Treasury bond yields fell, with the 10-year benchmark note yield dipping below 2.90 percent.

The immediate question that the lackluster report raised for financial markets was whether this would alter the Federal Reserve's plans to slowly reduce monthly stimulus. However, investors suggested weather-related effects on the employment numbers complicate that picture.

"The longer-term view is that the economy is still improving, which is why we're not seeing a big decline in stock futures, though yields are plummeting. That will be good for equities," said Wayne Kaufman, chief market analyst at Rockwell Securities in New York.

November's payrolls figures were revised higher, and the possibility that weather affected the report had some investors thinking the December numbers will be revised as well.

"You have a bunch of traders sitting there looking at a number they don't know anything about, they see a weak number and they hit 'sell' and when people take a look through it again, they will reconsider," said John Canally, investment strategist and economist for LPL Financial in Boston.

The dollar gave up gains following the jobs report, with the euro up 0.15 percent to $1.3627, and the dollar was down against the yen at 104.64.

Gold, which last week saw its best week since October, drifted around $1,240 an ounce, while copper, facing a second successive weekly fall, rose 1.1 percent to $7,296.00 a tonne.

Crude futures bounced to $92.67 a barrel after hitting an eight-month trough at $91.24 overnight. Brent crude edged up 45 cents to $106.84 per barrel.

CHINA MIXED

Asian markets had remained soggy overnight after Chinese trade data proved to be a mixed bag. While China's exports grew a little less than expected at 4.3 percent in December from a year earlier, imports easily outpaced forecasts with an increase of 8.3 percent.

The jump in imports could point to stronger domestic demand and a rebalancing away from a reliance on exports to fuel growth, a sea change long desired by policymakers everywhere.

"This indicates that domestic demand is not as soft as had been feared, and the Chinese economy - while decelerating - is unlikely to see a sharp slowdown," said Dariusz Kowalczyk, an economist at Credit Agricole CIB in Hong Kong.

ECB PARTS WAYS WITH FED

In contrast to the Fed, the European Central Bank keeps holding out the prospect of yet more stimulus in the euro zone.

On Thursday, ECB President Mario Draghi underlined his determination to act should deflation become a real risk or rising money rates threaten a fragile recovery.

Renewed upward pressure on the latter was avoided on Friday as despite an enforced year-end break, euro zone banks posted back just 2.6 billion euros of their ultra-cheap ECB LTRO loans, versus 20 billion last time around.

"The ECB's monthly press conference was very dovish in light of the current weakness in euro area inflation," said Dylan Eades, an economist at Australia and New Zealand Bank.

"Draghi left the market in no doubt that the ECB will act again if necessary."

Meanwhile, Euro zone periphery shares sustained their blistering rally on Friday.

Spanish stocks jumped another 0.9 percent to leave them up over 5.3 percent and on course for their strongest week since last March, while a 0.6 percent rise for Portuguese stocks took their 2014 gains to 8.4 percent.

All three countries' bonds have also enjoyed hefty rallies this week and though there was some small-scale profit taking on Friday, they have retained big gains.