Asian stocks buckle under Fed rate hike expectations

TOKYO (Reuters) - Asian stocks buckled while the US dollar held firm in early Monday trade after strong U.S. jobs data fanned expectations that the U.S. Federal Reserve may raise interest rates sooner than previously thought.

Japan's Nikkei fell 0.7 per cent while MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.5 per cent.

The U.S. Labor Department said on Friday that U.S. employers added 295,000 workers in February, beating a forecast of 240,000. It marked the longest run of 200,000-plus increases since 1994.

The unemployment rate hit a 6 1/2-year low of 5.5 per cent in February, down from 5.7 percent in January. "One hypothesis the labour data is putting forward is that employment may now be growing at a pace of almost 300,000 even after the dollar has strengthened considerably.

That is clearly above the speed limit," said Tomoaki Shishido, fixed income strategist at Nomura Securities. "If this continues while labour participation does not increase, the jobless rate will fall to around 4.5 per cent by the end of year and the Fed risks falling behind the curve in keeping inflation in check," he said.

On Wall Street, the S&P500 Index fell 1.4 per cent to a three-week low on Friday.

Money market futures were almost fully pricing in a first Fed rate hike by the summer.

Many analysts now think the Fed may drop the phrase that it will be patient in rate hikes in its next policy statement later this month and could raise rates as soon as in June.

The spectre of higher U.S. interest rates boosted the dollar in the currency market.

The dollar index, which rose 1.28 per cent on Friday in its biggest daily gain since July 2013, advanced further to trade at 97.679, its highest level in 11 1/2 years.

The euro fell as low as US$1.0822 in early Monday trade and last stood at US$1.0840.

The dollar fetched 120.71 yen, having hit a three-month high of 121.29 yen.

Gold also fell to three-month low of US$1,164.10 per ounce on Friday. Early on Monday it traded at US$1,169.90.

The U.S. data appeared to have overshadowed other data including figures from China on Sunday that showed a surge in exports in February.

But analysts also warned that the Chinese data was likely to be distorted due to the timing of lunar new year.