Dollar climbs on rate-hike bets; oil extends rally

By Lewis Krauskopf

NEW YORK (Reuters) - The U.S. dollar rallied against the yen on Monday amid firming bets of a U.S. interest rate hike later this year, while oil prices jumped nearly 3 percent to extend recent gains as speculation grew that OPEC would try to restrain output.

The MSCI All-Country World equity index rose 0.3 percent, helped by emerging markets and stocks in Asia. U.S. equity indexes dipped after the S&P 500 and Nasdaq closed at new record highs Friday in the wake of a strong July U.S. jobs report.

"The dollar took a big boost from the jobs numbers ... and there is a part of the market that expect that to follow through into retail sales on Friday," said Citi strategist Richard Cochinos. "But really it's August trading at the moment and we're struggling to find clear drivers."

The Dow Jones industrial average fell 21.02 points, or 0.11 percent, to 18,522.51, the S&P 500 lost 1.63 points, or 0.07 percent, to 2,181.24 and the Nasdaq Composite dropped 11.58 points, or 0.22 percent, to 5,209.55.

U.S. equities have pushed higher amid a better-than-expected corporate earnings season, and will take their cues this week from the results of several consumer companies.

"I think the market is just kind of taking a breather at this point," said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina. "There's just not a whole lot of news flow to push it one way or the other."

The pan-European STOXX 600 index slipped 0.1 percent. European bank stocks gained, helped by an upgrade for shares of Barclays.

The dollar edged up 0.2 percent against a basket of currencies, rising for a fourth straight session. Against the yen, the dollar gained 0.7 percent.

Friday's employment report showed U.S. nonfarm payrolls rose by 255,000 jobs in July, more than the Reuters forecast of 180,000. Traders are now basically split on whether the Federal Reserve will raise rates at its December meeting, according to the CME Fedwatch tool.

"We're seeing the aftermath of the (payrolls) last week," said Mark McCormick, North American head of FX strategy at TD Securities in Toronto.

Oil prices jumped nearly 3 percent amid renewed speculation that OPEC would try to restrain output, easing oversupply worries had pressured the market to three-month lows last week.

U.S. West Texas Intermediate (WTI) crude was up $1.15, or 2.8 percent, at $42.95 per barrel, while Brent crude rose $1.05, or 2.4 percent, to $45.32.

Yields on U.S. Treasuries with longer-dated maturities edged up to their highest in more than two weeks on bets the Fed could raise rates by year-end.

Benchmark 10-year Treasury notes fell 1/32 in price to yield 1.5833 percent.

(Additional reporting by Dion Rabouin and Karen Brettell in New York and Libby George and Sudip Kar-Gupta in London; Editing by Bernadette Baum)