GLOBAL MARKETS-Stocks jump, yields fall on hopes U.S. labor tightness ebbing

(Updates as of 1004 ET)

By Alden Bentley and Huw Jones

NEW YORK/LONDON, May 3 (Reuters) - Wall Street followed global shares higher on Friday after news that U.S. nonfarm payrolls grew less than expected last month, easing investor anxiety that tight labor markets and stubborn inflation would not let the Federal Reserve cut rates soon.

Treasury yields fell, as did the dollar, after the Labor Department said nonfarm payrolls increased by 175,000 jobs in April, healthy but short of expectations for an increase of 243,000, according to economists polled by Reuters.

The unemployment rate stood at 3.9% compared with expectations that it would remain steady at 3.8%. Wage growth cooled too, in a sign that compensation demands could be a declining inflationary driver. Average hourly earnings rose just 0.2%, less than forecast and below March's 0.3% growth.

"It's probably the best news the Fed has gotten in a couple of weeks," said Ross Mayfield, investment strategy analyst at Baird in Louiville, Kentucky. "It really is, on face, pretty much a Goldilocks report because you have payrolls growth softening, but not bad."

Traders increased bets in U.S. interest rate futures that the Fed could pivot to an easier policy in September. They now are pricing in two cuts of 25 basis points apiece this year, with a 78% chance of the first coming at the Fed's September meeting, compared with just one cut being forecast before the jobs numbers were released ahead of Wall Street's opening bell.

The Dow Jones Industrial Average was up 1.18% in early trade at 38,676.78, the S&P 500 rose 1.05% to 5,117.28 and the Nasdaq Composite gained 1.77% to 16,120.76.

"Rate cuts will move back up the agenda as a result and there is little doubt that markets will take this as good news. While we shouldn’t make too much of single data prints, this could be the start of a positive trend for the Fed," said Neil Birrell, Chief Investment Officer at Premier Miton Investors.

U.S. stock futures had been in an bullish mood before the report, after late Thursday's news that iPhone maker Apple would buy back a record $110 billion in shares.

The yield on benchmark U.S. 10-year notes fell 6.7 basis points to 4.504%. The 2-year note yield, which typically moves in step with interest rate expectations, fell 9.4 basis points to 4.7827%.

At the end of its policy meeting on Wednesday, the Fed signalled that the next move in rates would be down. That has been well received by many investors who had started to believe the Fed might not ease at all and could even raise rates as its next move.

Its statement helped put a floor under markets that were also cheered by U.S. corporate earnings coming in above expectations, said Eren Osman, wealth management director at Arbuthnot Latham.

"There is an increasingly valid case to be put forward that you can see economic activity and earnings growth remaining resilient in a higher interest rate environment," Osman said.

The MSCI All Country stock index extended gains to 1.133 after the U.S. data, though it was still down about 2% from its record high in March.

In Europe, the STOXX index of 600 companies rose 0.56%, while Europe's broad FTSEurofirst 300 index rose 0.53%.

YEN GUESSING GAME

The yen recovering from 34-year lows was the focus in Asia, capping a tumultuous week that saw suspected intervention from Japanese authorities, leaving the dollar on the back foot. Asian shares surged to their highest in 15 months on Friday, led by tech and Hong Kong stocks.

Markets in Japan and mainland China were closed on Friday. MSCI's broadest index of Asia-Pacific shares outside Japan surged to 550.49, its highest since February 2023.

Hong Kong's Hang Seng Index rose 1.36%, on track for a ninth consecutive day of gains and on its longest winning streak since January 2018.

The dollar was trading at 152.37 yen on Friday, down 0.83% having started the week by touching a 34-year high of 160.245 on Monday before all the intervention talk.

Traders suspect the authorities stepped in on at least two days this week and data from the Bank of Japan suggests Japanese officials may have spent roughly $60 billion to defend the beleaguered yen, leaving trading desks across the globe on high alert for further moves by Tokyo.

A series of Japanese public holidays as well as Monday's holiday in Britain - the world's biggest FX trading centre - could present a possible window for further intervention by Tokyo. Japanese markets are also closed on Monday.

The dollar index, which measures the U.S. currency against six peers, was last at 104.90, down 0.38% on the day, and facing its worst weekly performance since early March.

In commodities, U.S. crude lost 0.48% to $78.57 a barrel and Brent fell to $83.42 per barrel, down 0.3% on the day.

Spot gold lost 0.4% to $2,293.55 an ounce. U.S. gold futures fell 0.68% to $2,283.50 an ounce.

In cryptocurrencies, bitcoin gained 5.16% at $61,750.00.

(Reporting by Alden Bentley, Huw Jones and Amanda Cooper; Editing by Andrew Heavens, Mark Potter and Gareth Jones)