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Dollar rallies as jobs growth spurs rate hike expectations

[NEW YORK] The dollar jumped to an 11-1/2-year high against a basket of currencies on Friday as robust US employment growth fueled expectations that the Federal Reserve was closer to raising interest rates.

The euro fell below US$1.09 for the first time since September 2003. It was last at US$1.0862, off 1.50 per cent for the day.

The dollar accelerated after the government reported that US nonfarm payrolls grew by 295,000 in February, exceeding expectations of 240,000 new jobs. The unemployment rate fell to a more than 6-1/2-year low of 5.5 per cent. "We feel the economy is in a position for the Fed to begin normalising policy," said Sam Bullard, senior economist at Wells Fargo Securities in Charlotte, North Carolina. "We think it is on the path to make a rate change in June." The dollar index, which measures the greenback against six major currencies, climbed more than 1 per cent to 97.726, the highest level since September 2003, according to Thomson Reuters data.

US interest rates futures signaled that investors were placing more bets the Fed might raise rates this summer, though they have not fully priced in such a move until late 2015. "Markets are pricing in something less dovish," said Nick Verdi, currency strategist at Standard Chartered Bank in New York.

US bond yields, relatively high in comparison to European rates and a key attraction for foreign investors, also rose sharply after the unexpectedly strong employment report.

The euro has been in a long slide and slipped below US$1.10 on Thursday, when the European Central Bank set a Monday start for its 1.1 trillion euro bond-buying programme, designed to lower euro zone interest rates and spur growth.

The dollar was last up 0.50 per cent against the yen, to 120.72 yen, while the British pound lost 1 per cent against the dollar and last hovered just over US$1.50.

The 30-year Treasury fell sharply in price, which lifted its yield to 2.8703 per cent, a high not seen in more than two months.

REUTERS