(Adds European market close.)
* Oil surges over $134 a barrel on U.S. jobs report
* Unexpected jump in unemployment rate sparks bond rally
* Global stocks fall, dollar weakens on surprise report
By Herbert Lash
NEW YORK, June 6 (Reuters) - Oil surged to over $134 a
barrel on a falling dollar on Friday as the sharpest one-month
rise in the U.S. unemployment rate in 22 years slammed the U.S.
currency and pushed global equities sharply lower.
The dollar dropped across the board and U.S. government
debt rallied after data showed the unemployment rate shot up to
5.5 percent -- its highest in more than 3-1/2 years -- and the
U.S. economy lost jobs for a fifth straight month.
The evidence of further labor weakness, and a fresh 5
percent spike in oil prices, triggered a dramatic sell-off in
stocks and increased buying of low-risk government bonds.
The Labor Department data pared expectations that the
Federal Reserve will raise short-term interest rates any time
soon and risk pushing a fragile economy into recession. That
prospect will likely keep the dollar weak and spur inflation.
The interest rate scenario is made more difficult by the
dollar's dimmed outlook and a sharp rise in crude oil -- where
gains topped $12 in two days. In Europe on Thursday, European
Central Bank President Jean-Claude Trichet said the bank may
hike interest rates as early as July to stem growing
inflationary pressures in the euro zone.
"This makes it even harder for the Fed to contemplate a
rate hike before the election," said economist Cary Leahey of
Decision Economics in New York, was referring to the U.S.
presidential election in November.
U.S. interest rate futures implied about a 56 percent
chance of a quarter percentage point hike in October, down from
a high of 82 percent shortly before the jobs data.
European stocks fell 1.9 percent to a seven-week closing low
after the U.S. payroll report, while U.S. equity markets were
off about 2 percent after midday on Wall Street.
Banks were among the biggest losers in Europe and financial
stocks led U.S. declines as investors fled stocks sensitive to
slower growth.
UBS <UBSN.VX> slipped 6.4 percent and Royal Bank of
Scotland <RBS.L> slid 5.2 percent, while insurer American
International Group <AIG.N>> fell 6.3 percent to a decade low
and financial services firm American Express Co <AXP.N> fell 4
percent.
"We have a double whammy this morning: soaring oil prices
and economic news of the jump in the unemployment rate," said
Victor Pugliese, director of listed equity trading at
Broadpoint Securities in San Francisco.
"I would assume we are going to see a significant down
market the next day or two," he said.
At midday just before 1 p.m., the Dow Jones industrial
average <> was down 275.61 points, or 2.19 percent, at
12,328.84. The Standard & Poor's 500 Index <.SPX> was off 25.72
points, or 1.83 percent, at 1,378.33. The Nasdaq Composite
Index <> was down 42.89 points, or 1.68 percent, at
2,507.05.
The FTSEurofirst 300 <> index of top European shares
closed at 1,283.99 points, a closing level last seen in mid
April. The index lost 3.7 percent during the week.
Airline shares were among the worst hit, with Air
France-KLM <AIRF.PA> down 6 percent in Europe and U.S. carriers
American Airlines, owned by AMR Corp <AMR.N> and Continental
Airlines both off about 7 percent.
European exporters such as automakers got hammered as the
euro gained against dollar. BMW <BMWG.DE> shed 4.4 percent and
Daimler <DAIGn.DE> fell 4.7 percent.
the outlook for consumer spending is gloomy."
"This confirms that oil prices are closely following the
dollar and stocks are suffering from the spike, particularly
airlines. Just look at how their shares have been dumped," said
Jean-Francois Virolle, chief strategist at Global Equities in
Paris.
"Automakers are suffering too, hit from all sides: the
rising euro, rising steel prices, rising oil prices... while
outlook for consumer spending is gloomy."
Remarks by Israel's transport minister that an attack on
Iranian nuclear sites looked "unavoidable" and a Morgan Stanley
report predicting oil could reach a record high of $150 by July
4 also sent crude prices roaring upwards.
"We are calling for a short-term spike in oil prices," the
U.S. investment bank said.
U.S. light sweet crude oil <CLc1> rose $6.46 to $134.25 per
barrel, in sight of last month's record $135.09.
New York gold futures jumped more than 2 percent on crude
oil's rally and the dollar's drop.
Spot gold prices <XAU=> rose $17.00 to $894.35.
Euro zone government bond futures tested negative territory
as investors fled following a brief rally in the wake of the
U.S. employment report.
September Bund futures <FGBLU8> pared the day's gains and
dipped into losses.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
one full point to yield at 3.92. The 30-year U.S. Treasury bond
<US30YT=RR> rose 51/32 to yield 4.63 percent.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.74 percent at 72.499. Against the
yen <JPY=>, the dollar fell to 105.82 yen.
The euro <EUR=> gained versus the dollar to $1.5673.
Japanese government bond prices sank after a sell-off in
European and U.S. bonds the previous day when Trichet's remarks
sparked investor jitters.
The yield of the benchmark 10-year Japanese government bond
<JP10YTN=JBTC>, which moves inversely to price, rose to 1.79
percent, just shy off a 10-month high.
Japan's Nikkei average <> climbed 1 percent to a
five-month closing high, and the MSCI index of Asia-Pacific
stocks outside Japan rose 0.8 percent <.MIAPJ0000PUS>.
(Reporting by Walker Simon, Gertrude Chavez-Dreyfuss, Richard
Leong in New York and Margaret Orgill in London. Editing by
Richard Satran)
