Dollar gains, gold loses luster amid robust U.S. data

© Reuters. Traders work at their desks in front of the German share price index DAX board in Frankfurt

By Lewis Krauskopf

NEW YORK (Reuters) - The U.S. dollar strengthened on Thursday, pressuring gold prices, as strong labor market data gave support to a possible hike in U.S. interest rates later this year.

U.S. Treasury yields rose to three-week highs, ahead of the closely watched U.S. jobs report due out on Friday. In an encouraging sign for the labor market, data on Thursday showed the number of Americans filing for unemployment benefits unexpectedly fell last week to near a 43-year low.

Oil prices continued to climb, with U.S. crude breaking through $50, on growing expectations for the world's biggest producers to agree to cut supply, and after a report showed a big drop in U.S. inventory levels a day earlier.

Wall Street was little changed, as energy sector gains countered a drag from Wal-Mart Stores (N:WMT), which tempered its profit expectations.

The U.S. currency rose to its highest against the yen in a month, and pinned sterling firmly to a three-decade low on worries about Britain's exit from the European Union. Against a basket of currencies, the greenback (DXY) gained 0.4 percent.

"By and large the dollar is continuing to trade well," said Societe Generale (PA:SOGN) strategist Alvin Tan. "Expectations about the Fed raising rates are edging up and that has been helped by the good run of U.S. data."

Strong U.S. jobs numbers could cement expectations of a Federal Reserve rate increase later this year and ripple through markets. Economists polled by Reuters forecast nonfarm payrolls to increase by 175,000.

Traders were betting on a 64 percent chance the Fed will hike rates in December, up slightly from a day earlier, according to the CME FedWatch website.

“If you look at the economic data for the past month, pretty much across the board it’s better and in some cases materially better than expectations," said Walter Todd, chief investment officer at Greenwood Capital Associates in Greenwood, South Carolina. "All of that would seem to push the Fed to move."

In the U.S. equity market, the Dow Jones industrial average (DJI) fell 15.37 points, or 0.08 percent, to 18,265.66, the S&P 500 (SPX) gained 1.13 points, or 0.05 percent, to 2,160.86 and the Nasdaq Composite (IXIC) dropped 4.25 points, or 0.08 percent, to 5,311.77.

MSCI's gauge of stocks across the globe (MIWD00000PUS) fell 0.1 percent.

Europe's benchmark German bond yield edged briefly back above zero, reversing earlier falls, as a sell-off in the British government bond market spilled over into the euro area.

Germany's 10-year Bund yield (DE10YT=RR), the euro zone benchmark, was last flat for the session and near zero percent. Britain's 10-year gilt yield (GB10YT=RR) jumped nearly 10 basis points to a three-week high.

Benchmark 10-year U.S. notes (US10YT=RR) were last down 4/32 in price to yield 1.73 percent, up from nearly 1.72 percent late on Wednesday.

Oil rallied to fresh four-month highs.

Brent crude futures (LCOc1) rose 1.1 percent to $52.45 a barrel. U.S. futures (CLc1) climbed 1 percent to $50.34 a barrel, having broken above $50 for the first time since June.

Spot gold fell 1 percent to more than three-month lows.

"A surprise on the upside (of the labor numbers) will make market watchers expect an even higher probability of a rate hike, and that could bring gold prices down," OCBC Bank analyst Barnabas Gan said.