NEW YORK U.S. stocks jumped 1 percent on Friday, while the dollar rallied and Treasury debt prices fell after strong job market data showed the world's largest economy on a solid footing.
U.S. jobs growth was better than expected in June and the two previous months of gains were revised higher. U.S. bond yields are up sharply, hitting levels not seen since August 2011, as the data increases the likelihood that the U.S. Federal Reserve will begin cutting its massive monetary stimulus, known as quantitative easing, as early as September.
"The prospects of the job market growing certainly have been reconfirmed with this report," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
"We're seeing the markets react very positively, obviously the dollar is going through the roof here, the bond market is down sharply with the 10-year Treasury bond (yield) surpassing its peak height of a few weeks ago."
Non-farm payrolls increased by 195,000 in June and the unemployment rate held steady at 7.6 percent as more people entered the workforce. Economists at Goldman Sachs and JPMorgan revised previously held views on the Fed, saying they now believe bond-buying will start to wind down in September.
After the closing bell in New York the Dow Jones industrial average .DJI rose 147.29 points or 0.98 percent, to 15,135.84, the S&P 500 .SPX gained 16.48 points or 1.02 percent, to 1,631.89 and the Nasdaq Composite .IXIC added 35.71 points or 1.04 percent, to 3,479.38.
MSCI's global share index .MIWD00000PUS was down 0.03 percent.
MARKETS SEE FED POLICY CHANGE
Increased expectations of a Fed move to reduce the pace of bond purchases that has helped support the economy sent the U.S. 10-year Treasury yield to a high of 2.7324 percent, the highest in almost two years.
The five- and seven-year yields were at highs not seen since July 2011.
The strong jobs data also made clear that Federal Reserve policy may soon start to vary from other large central banks, favoring the U.S. currency.
The U.S. dollar hit a five-week high versus the yen and a six-week peak against the euro. The dollar index .DXY hit its highest in three years.
Equity futures initially got support from comments from central banks in Britain and the euro zone on Thursday signaling that, unlike the United States, they are in no hurry to unwind stimulus. Those bets reversed on Friday and European shares, which had their best day in 11 months on Thursday, fell broadly.
The FTSEurofirst 300 index .FTEU3 closed down 1.3 percent after it gained 2.4 percent on Thursday.
U.S. markets were closed on Thursday for the Independence Day holiday.
"The data is strong enough that it validates the ECB's (European Central Bank) and BOE's (Bank of England) attempts to try to distinguish their policy actions from those in the U.S.," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.
The euro was down 0.6 percent against the dollar at $1.2831 after hitting $1.2805, its lowest since May 20. Against the yen, the dollar touched a peak of 101.22 yen, its highest since May 31. It was last at 101.19, up 1.2 percent.
The firmer dollar weighed on some dollar-priced commodities and spot gold fell 2.1 percent to $1,223.10 an ounce. Copper was down 2.6 percent near $6,789 a ton.
Brent crude, however, rose 2.1 percent to $107.70 a barrel after the leader of a group backing the ousted Egyptian president Mohamed Mursi called for his reinstatement, fuelling fears of escalating conflict in the nation and spillover to elsewhere in the Middle East.
WTI crude prices rose 2 percent to $103.23 per barrel, a 14-month high.
At 5.4 percent, it was the largest weekly gain for Brent since late June 2012. WTI gained 7.1 percent for the week, its largest gain since late February 2011.
(Additional reporting by Ryan Vlastelica, Karen Brettell, Luciana Lopez and Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama)