* Bonds falls on fears of interest-rate hikes in 2010
* Wall Street rebounds late to end flat
* Oil eases on stronger dollar, soft equities market
* Ireland downgrade hits euro, U.S. dollar extends rally
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, June 8 (Reuters) - The U.S. dollar extended
gains and U.S. government debt prices fell on Monday on fears
the Federal Reserve will hike interest rates sooner than
expected after last week's surprisingly strong jobs data.
The selling of bonds followed a steep sell-off on Friday
after the U.S. Labor Department said employers cut far fewer
jobs in May than had been forecast, sparking speculation that
a recession might end this year and later spur higher rates.
Eurodollar futures on Monday priced in a rise in U.S.
interest rates of almost 1 percentage point within a year
after Friday's payrolls report.
Oil fell to almost $68 a barrel on the stronger dollar and
weakness in U.S. and European stocks.
U.S. stocks rebounded before the close, disregarding
lowered iPhone prices from Apple <AAPL.O> and disappointing
sales from McDonald's <MCD.N>.
Longer-dated euro-zone government bonds closed higher
while their U.S. counterparts initially rose as the weakness
in stocks boosted the allure of lower-risk fixed-income
assets, driving the benchmark bund yield off a seven-month
peak.
Longer-dated U.S. Treasuries later turned lower as the
improving economic outlook sparked fears that the Fed will be
forced to drop its near-zero interest-rate policy.
"The focus now is on the Fed actually tightening rates,
sort of, into the fall," said Thomas di Galoma, head of fixed-
income rates trading at Guggenheim Capital Markets LLC in New
York.
"Reality on the Fed is just changing. There was a feeling
that the Fed would be able to leave rates at pretty much zero
through 2009 and probably well into 2010," he said.
The rate-sensitive two-year note <US2YT=RR> fell 9/32 in
price to yield almost 1.44 percent, the highest since early
November and up from 0.96 percent late on Thursday.
Benchmark 10-year notes <US10YT=RR> fell 17/32, pushing
yields up to 3.91 percent from 3.84 percent at Friday's
close.
Gold futures ended below $950 an ounce as the dollar rose
sharply on signs of an economic recovery, reducing the appeal
of bullion as a hedge against a weakening U.S. currency.
The August gold contract <GCQ9> tumbled 1.1 percent, or
$10.10, to settle at $952.50 an ounce in New York.
The euro fell broadly after ratings agency Standard &
Poor's cut Ireland's sovereign credit rating to AA, the
country's second downgrade by an agency in three months.
The downgrade provided a fresh catalyst to sell the euro,
which fell to a nearly two-week low of $1.3806 and bolstered
the dollar.
"The immediate reaction (to the downgrade) was to take the
euro lower, which in any event, was trading heavily," said
Marc Chandler, senior currency strategist at Brown Brothers
Harriman in New York.
The euro <EUR=> traded 0.48 percent lower at $1.3905.
The Dow Jones industrial average <> inched up 1.36
points, or 0.02 percent, to close at 8,764.49. The Standard &
Poor's 500 Index <.SPX> fell 0.95 of a point, or 0.10 percent,
to 939.14. The Nasdaq Composite Index <> fell 7.02
points, or 0.38 percent, to 1,842.40.
The S&P 500 has rallied 39 percent since sliding to a
12-year closing low on March 9, leading to speculation a
correction loomed, despite recent dips that have been
short-lived.
"The market has been in an uptrend and ever since we broke
through that 200-day moving average, the market has been
acting pretty well," said Todd Leone, head of listed trading
at Cowen & Co. in New York. "You're still seeing buyers out
there."
A rally in commodity prices helped limit losses of
European mining and energy shares.
The pan-European FTSEurofirst 300 <> index fell 0.8
percent to close at 865.11 points.
The dollar was up against a basket of major currencies,
with the U.S. Dollar Index <.DXY> up 0.26 percent at 80.874.
Against the yen, though, the dollar <JPY=> was down 0.15
percent at 98.49 yen.
U.S. crude <CLc1> fell 35 cents to settle at $68.09 a
barrel, off a seven-month high of $70.32 hit on Friday. London
Brent <LCOc1> fell 46 cents to $67.88.
Japan's Nikkei share average <> rose 1 percent to
fresh eight-month highs, helped by a report on Friday that
showed fewer-than-expected U.S. job losses in May. MSCI's
index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS>
slid further in after-hours trade, falling 2.1 percent.
(Reporting by Tenzin Pema, Steven C. Johnson and Ellen
Freilich in New York; Christopher Johnson, Ian Chua, Brian
Gorman in London; and Vidya Ranganathan in Singapore; Writing
by Herbert Lash; Editing by Jan Paschal)
