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Fed rate hike expectations hit stocks, dollar holds firm

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US One Hundred Dollar Notes
March 9
8:50 AM 2015

Stocks fell and the dollar held firm on Monday in the wake of forecast-beating U.S. jobs numbers that stoked expectations the Federal Reserve could raise interest rates sooner than previously thought.

In Europe, most euro zone government bond yields fell on the first day of the European Central Bank's 1 trillion euro bond-buying program.

European stocks opened lower, following falls in Asia and a drop on Wall Street on Friday after the U.S. jobs data. 

The U.S. economy added 295,000 new jobs in February -- more than forecast -- and the unemployment rate fell to a more than 6 1/2-year low of 5.5 percent from 5.7 percent in January.

This raised expectations the Fed would at its March meeting drop a reference to "patience" on the timing of a rate hike, opening the door for a rate rise in June.

The pan-European FTSEurofirst 300 index .FTEU3 was last down 0.8 percent, also hit by a 2.1 percent drop in German exports in January, the biggest fall in five months.

Tokyo's Nikkei stocks index .N225 closed 1 percent lower while MSCI's main index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.2 percent.

On Friday the S&P 500 index .SPX fell 1.4 percent and posted its second consecutive weekly loss.

The dollar dipped 0.2 percent against a basket of currencies .DXY, having hit a fresh 11 1/2-year high in Asian trade after the U.S. jobs data lifted Treasury bond yields on Friday.

"The dollar has traveled a long way in a pretty short time. U.S. yields have risen but they need another catalyst to move further higher. So until then, we could see some consolidation," said Jeremy Stretch, head of currency strategy at CIBC World Markets in London.

The euro hit its lowest against the U.S. currency since September 2003 at $1.0822 before edging up to $1.0885. The euro has been pressured by the divergent monetary policies of the Fed and the ECB.

The dollar was flat at 120.85 yen, having hit a three-month high of 121.29.

German 10-year government bond yields, the euro zone benchmark, fell 5.6 basis points to 0.35 percent in anticipation of ECB buying.

Greek yields, however, rose slightly before a meeting of euro zone finance ministers later in the day on reforms proposed by Greece, which is seeking more funds from its international creditors. Eurogroup leader and Dutch Finance Minister Jeroen Dijsselbloem said on Sunday the list was "far from complete".

GOLD, OIL

Brent crude oil LCOc1 fell to $59.60 a barrel as the impact of the strong dollar outweighed the threat of output cuts in Libya and Iraq, while gold edged higher to $1,172.60 an ounce, still close to a three-month low.

"The U.S. dollar is continuing to strengthen. In the short-term it's more about the dollar than anything else," said Ben LeBrun, market analyst at Sydney's OptionsXpress.

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