Stocks surged and the dollar rose against the yen on Friday as news of a jump in U.S. job creation fuelled hopes for recovery in the world's largest economy, while uncertainty over a Greek debt restructuring deal helped keep the euro little changed.
The January U.S. jobs report propelled the Nasdaq stock index to an 11-year high, with European stocks closing at their highest in more than six months.
The data also lowered expectations for more monetary policy easing by the U.S. Federal Reserve, with analysts saying a brightening economy could support fewer arguments for stimulus.
U.S. job creation last month far outstripped analysts' expectations, with the unemployment rate dropping to a near three-year low of 8.3 percent.
In addition, the pace of growth in the U.S. services sector unexpectedly accelerated to its highest in nearly a year.
It's certainly supportive of the U.S. recovery and suggests that (labour market) momentum is gathering pace, said Brian Dolan, chief market strategist at Forex.com in Bedminster, New Jersey. From a trading standpoint, it's positive for risk, but it also lowers the prospects for QE3, which is dollar-positive, he added, referring to the Fed's quantitative easing program.
With the U.S. recovery showing signs of gaining momentum, analysts said the Fed - the U.S. central bank - could have less reason to step into markets with another round of quantitative easing to add liquidity. The possibility of QE3 probably gets pushed back to the second half of the year, said Dolan.
The Dow Jones industrial average <.DJI> gained 151.30 points, or 1.19 percent, to 12,856.71. The Standard & Poor's 500 Index <.SPX> gained 18.46 points, or 1.39 percent, to 1,344.00. The Nasdaq Composite Index <.IXIC> gained 46.84 points, or 1.64 percent, to 2,906.52.
European shares surged past a resistance level, with the FTSEurofirst 300 index <.FTEU3> of top European shares closing up 1.63 percent at 1,076.70.
In a bullish move, the FTSEurofirst 300 broke past its 61.8 percent Fibonacci retracement level at 1,062.24 from its February 2011 high to September 2011 low, which had been a major resistance level.
The index could climb to 1,113.73, the level it reached in late July 2011 before it retraced to its September 2011 low.
The euro trimmed losses from earlier in the session, when lowered expectations for Fed easing had boosted the dollar.
But with a restructuring deal between Greece and its creditors still elusive, said John Doyle, a currency strategist with Tempus Consulting in Washington, D.C., investors were hesitant to push the euro much in either direction.
Athens is scrambling to wrap up talks on a 130-billion-euro rescue plan and a bond swap deal before big bond redemptions come due in March.
Greece has repeatedly said the talks are in their final stage but has failed to secure a deal after weeks of wrangling, largely over concern that the rescue plan will not do enough to bring Greece's debt burden under control.
With the Greek thing still hanging over markets, you saw (the euro) churn right back up because people aren't sure what's going to happen now, said Doyle.
The euro last traded at $1.3152, up 0.05 percent. The dollar was last at 76.57 yen, up 0.51 percent, after touching a session high of 76.74 yen.
The dollar's advance against the yen also eased expectations Japan would step into foreign exchange markets to brake the currency's growing strength.
The Bank of Japan and the Ministry of Finance will be rejoicing because the Japanese are the single biggest beneficiaries of today's strong jobs number, said Kathy Lien, director of currency research at GFT Forex in Jersey City, New Jersey, adding that the pressure to intervene has been instantly lifted.
Prices of U.S. Treasuries, often considered a safe haven in times of economic turmoil, plunged after the data. The benchmark 10-year U.S. Treasury note was down 1-1/32, with the yield at 1.94 percent.
According to Jefferies, dealers were long Treasuries by $91.859 billion on January 25, the second-highest long position on record.
They are now likely unloading these positions after the unexpectedly strong payroll number and ahead of the Treasury's planned $72 billion in new three-, 10- and 30-year bond supply next week.
U.S. crude oil futures rose, snapping a five-day losing streak, as the U.S. data raised hopes for better oil demand.
The upbeat economic outlook added to early gains triggered by a warning from Iran's supreme leader of retaliation against the West for imposing sanctions over Iran's nuclear program.
NYMEX crude for March delivery settled at $97.84 a barrel, gaining $1.48, or 1.54 percent.
(Additional reporting by Rodrigo Campos, Steven C. Johnson and Daniel Bases; Editing by James Dalgleish)