U.S. Treasuries rally, futures drop after jobs data

By David Gaffen

NEW YORK (Reuters) - U.S. Treasuries prices rallied, the dollar fell and equity futures stumbled on Friday after weaker-than-expected March U.S. jobs data.

Labor Department data showed U.S. employers added just 126,000 jobs in March, the fewest in more than a year. The figure was well below expectations for a gain of 245,000, according to a Reuters poll of economists.

Recent data suggests the first quarter ended on a weak note, weighing on investor sentiment. The bond market rallied sharply, pushing the benchmark 10-year Treasury note to its lowest level in about two months, as the expectation for a Federal Reserve interest-rate hike by September diminished.

U.S. equity futures fell nearly 1 percent, with S&P 500 E-mini futures dropping 19.75 points to 2039.75 in thin volume in a 45-minute abbreviated session. It indicates a weak open for stocks on Monday.

"The sharply lower-than-consensus job creation for March is a reminder that the U.S. economic recovery is yet to reach escape velocity," said Mohamed El-Erian, chief economic advisor at Allianz Se in Newport Beach, Calif.

Trading was thin on Friday due to the Good Friday holiday, as major U.S. stock exchanges were closed, so the reaction in both U.S. Treasuries and in U.S. equity futures was affected by the light volume. The U.S. bond market will close at 1200 ET (1600 GMT).

Major European markets are closed from Friday to Monday for the Easter holiday, reopening on Tuesday. Asian equity markets rallied in thin trading ahead of the Easter holiday and the U.S. jobs figures.

The report weakened the dollar, continuing recent short-term weakness in the greenback that followed a 20-percent-plus rally in the currency against major trading partners. With European economic data coming in better than anticipated, the dollar's recent sluggishness may have further to run.

The dollar index slid 1 percent to a low of 96.394. Against the yen, the dollar fell to 118.92, or 0.7 percent. The euro rallied 1.2 percent to $1.1004.

The data reduced the market's expectations for a rate increase by September. Most Wall Street brokerages who deal directly with the Federal Reserve see that month as the likely moment for the Fed to raise rates, but the strong dollar, decline in oil and weakness abroad may mean the Fed could hold off further.

"We view this payroll number as more negative than positive for U.S. equities. The consumer demand story is more important than the Fed hike scenario," said Daniel Morris, global investment strategist at TIAA-CREF in New York.

Asian shares gained. MSCI's broadest index of Asia-Pacific shares outside Japan rose about 0.4 percent, while Japan's Nikkei stock average finished 0.6 percent higher.

Chinese shares added 0.8 percent, shrugging off mixed HSBC/Markit China Services Purchasing Managers' Index (PMI) figures. They showed the services sector expanded in March but growth in employment and new business fell to their lowest in at least eight months, in yet another sign that the weak Chinese economy may need more policy aid.

Brent oil fell nearly 4 percent on Thursday after a preliminary pact between Iran and global powers on Tehran's nuclear program.

(Additional reporting by Daniel Bases and Jennifer Ablan in New York and Koh Gui Qing in Beijing; Editing by Simon Cameron-Moore, Bernard Orr)