Dollar firms, U.S. stocks steady before jobs data

NEW YORK (Reuters) - The U.S. dollar gained on Thursday against a basket of currencies, hitting its highest level in more than two months and pressuring gold prices, as strong labor market data gave support to a possible U.S. interest rate hike later this year.

Traders work on the floor of the New York Stock Exchange (NYSE) as the market closes in New York, U.S., October 3, 2016. REUTERS/Lucas Jackson

The benchmark S&P 500 stock index ended barely higher while Treasury yields rose to three-week highs as investors positioned ahead of the closely watched U.S. employment report due out on Friday.

In an encouraging sign for the labor market, data on Thursday showed the number of Americans filing for unemployment benefits unexpectedly fell last week to near a 43-year low.

Oil prices continued to climb, with U.S. crude breaking through $50, spurred by an informal meeting among the world’s biggest producers on output cuts and plunging U.S. crude inventories.

The dollar rose to its highest against the yen JPY= in a month, and pinned sterling GBP= firmly to a three-decade low on worries about Britain's exit from the European Union. Against a basket of currencies, the greenback .DXY gained 0.6 percent.

Strong U.S. jobs numbers could cement expectations of a Federal Reserve rate increase later this year and ripple through markets. Economists polled by Reuters forecast nonfarm payrolls to increase by 175,000.

Traders were betting on a 64-percent chance the Fed will hike rates in December, up slightly from a day earlier, according to the CME FedWatch website.

“If you look at the economic data for the past month, pretty much across the board it’s better and in some cases materially better than expectations,” said Walter Todd, chief investment officer at Greenwood Capital Associates in Greenwood, South Carolina. “All of that would seem to push the Fed to move.”

In the U.S. equity market, the Dow Jones industrial average .DJI fell 12.53 points, or 0.07 percent, to 18,268.5, the S&P 500 .SPX gained 1.04 points, or 0.05 percent, to 2,160.77 and the Nasdaq Composite .IXIC dropped 9.17 points, or 0.17 percent, to 5,306.85.

Gains in Apple AAPL.O, bolstered by optimism about the iPhone, countered a drag from Wal-Mart Stores WMT.N, which tempered its profit expectations.

The pan-European STOXX index .STOXX fell 0.4 percent. Shares of British budget airline easyJet EZJ.L tumbled after a weak profit report.

MSCI's gauge of stocks across the globe .MIWD00000PUS dipped 0.12 percent.

Europe’s benchmark German bond yield edged briefly back above zero, reversing earlier falls, as a selloff in the British government bond market spilled over into the euro area.

Britain's 10-year gilt yield GB10YT=RR jumped nearly 10 basis points to a three-week high.

Benchmark 10-year U.S. notes US10YT=RR were last down 7/32 in price to yield 1.74 percent, up from nearly 1.72 percent late on Wednesday.

Oil rallied to fresh four-month highs.

Brent crude futures LCOc1 settled up 1.3 percent at $52.51 a barrel. U.S. crude CLc1 settled up 1.2 percent at $50.44 a barrel, eclipsing $50 for the first time since June.

“The fact that you’ve got crude look like it’s willing to hold around that $50 level I think is a positive for the (stock) market,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “That’s maybe another confirmation giving a positive tone to future economic activity.”

Spot gold XAU= dropped 1.1 percent and touched a four-month low, falling for an eighth straight session.

Additional reporting by Barani Krishnan, Richard Leong and Karen Brettell in New York, Marc Jones and Clara Denina in London; Editing by Bernadette Baum and Nick Zieminski