By Kevin Buckland
TOKYO (Reuters) – Asian shares rose and the dollar hit a new seven-week high against the yen on Monday, as a blow to the U.S. labor market eased recession fears and fueled a sharp decline in interest rate cuts.
Short-term U.S. Treasury yields rose after Friday’s closely watched nonfarm payrolls report showed the economy unexpectedly created the most jobs in six months in September.
Crude oil prices fell after a one-month spike even as Israel bombed targets in Lebanon and the Gaza Strip. Monday marked one year since the Hamas attack that sparked the war.
Japan’s Nikkei led regional stock gains with a 2% rally as of 0015 GMT, boosted by added momentum from a softer yen.
Australia’s stock benchmark rose 0.12% and South Korea’s Kospi gained 0.29%.
Hong Kong’s Hang Seng had yet to open and stocks in mainland China will remain closed until Tuesday for Golden Week.
MSCI’s broadest index of Asia-Pacific shares rose 0.4%.
US Dow futures pointed 0.08% higher after the cash index closed at a record high on Friday following payrolls data.
“The reaction in the markets highlights what the most important themes and risks are for market participants right now: economic growth and its impact – for stocks – on future earnings,” said Kyle Rodda, senior financial market analyst at Capital.com.
“There also appears to be a resurgence in the trade in economic exceptionalism in the US.”
The US dollar rose for the first time since August 16 to 149.10 yen, before rising 0.18% to 148.87 yen in the last trading day.
Japan’s top currency diplomat Atsushi Mimura said Monday that officials will monitor currency movements, including speculative trading.
The euro fell 0.07% to $1.0971, falling back to Friday’s low of $1.09515.
Bets on a massive 50 basis point rate cut at the Federal Reserve’s next policy announcement on November 7 – which were above 50% a week ago – were completely wiped out after the payroll report.
Instead, traders are now using 95% odds on a quarter-point cut, with a small chance that the policy rate will remain unchanged, according to CME Group’s FedWatch Tool.
The yield on two-year US Treasury bonds rose 1.7 basis points to 3.9488% on Monday, the highest level in more than a month.
Gold fell 0.1% lower to $2,849.29 an ounce, but was not far from last month’s record peak of $2,685.42.
Crude oil prices fell after their biggest weekly gain in more than a year amid the growing threat of a region-wide war in the Middle East.
Brent crude futures lost 65 cents to $77.40 a barrel, while U.S. West Texas Intermediate crude futures fell 53 cents to $73.85 a barrel.
(Reporting by Kevin Buckland; Editing by Jamie Freed)