Global stocks cheered by potential dovish Fed; dollar gains

September 1, 2016 8:59 PM EDT

A man walks in front of a screen showing today's movements of Nikkei share average outside a brokerage in Tokyo, Japan, June 2, 2016. REUTERS/Issei Kato

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By Sam Forgione

NEW YORK (Reuters) - U.S. shares inched higher and European shares rallied on Friday after weaker-than-expected U.S. jobs data gave the Federal Reserve more leeway to stand pat on interest rates, while the dollar gained and longer-dated Treasury yields edged up.

U.S. nonfarm payrolls rose by 151,000 jobs in August after an upwardly revised 275,000 increase in July, with job cuts in manufacturing and construction, the Labor Department said. Economists polled by Reuters had forecast payrolls rising 180,000 last month.

Fed funds futures on Friday suggested traders saw a 21-percent probability of a Fed rate hike later this month, down from Thursday's probability of 24 percent, according to CME Group's FedWatch program.

Rate hike probabilities for September and December had risen after last Friday's remarks by Fed Chair Janet Yellen that the case for raising rates had strengthened in recent months.

U.S. and European share markets cheered the jobs figures' implication that the Fed may wait until December to act.

"People are taking a little bit of a relief that it wasn’t a 200,000 plus print, certainly in the equity market," said Sean Lynch, co-head of global equity strategy at Wells Fargo Investment Institute in Omaha, Nebraska.

MSCI's all-country world equity index <.MIWD00000PUS> was last up 2.94 points, or 0.7 percent, at 420.29.

The Dow Jones industrial average <.DJI> closed up 72.66 points, or 0.39 percent, at 18,491.96. The S&P 500 <.SPX> ended up 9.12 points, or 0.42 percent, at 2,179.98. The Nasdaq Composite <.IXIC> closed up 22.69 points, or 0.43 percent, at 5,249.90. [nL1N1BE1KT]

Europe's broad FTSEurofirst 300 index <.FTEU3> closed up 2.06 percent, at 1,378.94.

For the week, the S&P 500 rose 0.5 percent to mark its first positive week in three, while the FTSEurofirst 300 posted its second straight week of gains and its biggest since mid-July, at 1.9 percent.

Despite the jobs data not clearly reinforcing a September rate hike, the dollar gained on the prospect of a December rate increase.

The dollar index <.DXY>, which measures the greenback against a basket of six major currencies, was last up 0.21 percent at 95.850 after hitting a one-week low of 95.189 immediately after the data. [nL1N1BE1BU]

Safe-haven U.S. Treasuries prices initially rallied on the U.S. jobs data, with two-year yields falling to their lowest in 10 days of 0.746 percent and benchmark 10-year yields hitting a one-week low of 1.543 percent .

But yields reversed that drop later in the session, with two-year yields last little changed at 0.794 percent and 10-year yields last at 1.601 percent, compared with a 10-year yield of 1.570 percent late on Thursday. [nL1N1BE1ET]

"We’re in a low-expectation environment and these numbers are still positive," said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee, in reference to the U.S. jobs data.

The dollar's initial weakness helped prompt gains in oil prices, though despite the day's rise, crude prices still ended the week sharply lower on concerns about oversupply.

Brent crude settled up $1.38, or 3.04 percent, at $46.83 a barrel. U.S. crude settled up $1.28, or 2.97 percent, at $44.44 a barrel.

For the week, Brent fell 6 percent, its biggest drop in five weeks, while U.S. crude fell nearly 7 percent to mark its largest decline in eight weeks.

U.S. gold futures settled up 0.7 percent at $1,326.70. [nL8N1BE20K]

(Additional reporting by Alistair Smout in London and Chuck Mikolajczak, Dion Rabouin and Barani Krishnan in New York; Editing by Nick Zieminski and Dan Grebler)

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