June 5, 2013 / 3:03 AM / in 4 years

Dollar, shares fall before U.S. jobs data

A man walks through the lobby of the London Stock Exchange August 5, 2011.Suzanne Plunkett

LONDON (Reuters) - The dollar sank below 100 yen on Wednesday and world shares fell, as investors pulled out of riskier assets before U.S. jobs data that might fuel talk of an early end to the Federal Reserve's stimulus program.

Private sector jobs growth for May, due at 8:15 a.m. EDT, is being watched for signs of strength, which would increase expectations of an early tapering in Fed bond buying for a market already on edge over Friday's nonfarm payrolls report.

MSCI's world equity index .MIWD00000PUS extended losses posted earlier on disappointment over an update from Japan on its growth program, and U.S. stocks futures dipped further into the red to point to a weak open on Wall Street. .N

The U.S. central bank has explicitly linked the health of the jobs market to the continuation of its ultra-loose monetary policy, which has come under review as economic data pointed to growing economic momentum despite government spending cuts.

"The Fed is definitely moving toward a tapering of its QE (quantitative easing) but there is uncertainty whether this could be as soon as September or by the end of the year," Lee Hardman, currency analyst for Bank of Tokyo Mitsubishi UFJ said.

Japan's main Nikkei share index .N225 earlier led equity market falls, dropping 3.8 percent to a two-month low in reaction to Prime Minister Shinzo Abe's latest policy announcement, which also sent the dollar down 0.4 percent against the Japanese currency to around 99.60 yen.

In the third tranche of measures aimed at boosting growth, Abe pledged to boost incomes and attract foreign businesses, but did not mention plans to encourage Japan's public funds to seek higher returns by investing more in riskier assets like equities.

"Investor expectations were for more specific growth policies and the disappointment has only exacerbated a trend for a correction in Japan's stock market," Hardman said.

Since the Nikkei index rose to a 5-1/2 year high on May 23, marking a rise of more than 50 percent this year, doubts about the effectiveness of Abe's economic reforms and Bank of Japan stimulus efforts have led to a steady retracement of the gains.

European shares .FTEU3 were down some 1 percent by midday, having largely ignored data showing euro zone business activity eased in May, and confirming the region's economy contracted in the first quarter.

BRIGHTER BRITAIN

The data kept pressure on the European Central Bank to do more to stimulate growth, but was not seen as changing the prevailing view that the bank will leave monetary policy unchanged after its meeting on Thursday.

The likely lack of action by the ECB and the weaker equity markets helped 10-year safe haven German government bond yields ease to 1.48 percent, down from Monday's highest level in nearly three months of 1.534 percent.

Brighter news from Britain's big service companies boosted sterling, which climbed to high of $1.5372, within sight of a three-week peak of $1.5376 struck on Monday.

Commodity markets were mixed.

Growth-attuned copper edged back for a two-week high on concerns over Chinese demand, while a surprise fall in U.S. crude supplies supported oil prices which climbed back toward £104 a barrel for the first time in a week.

"Overall, oil markets will remain largely choppy as investors try and gauge if stimulus measures from the U.S. Fed will continue or not," said Ben Le Brun, an analyst at OptionsXpress in Sydney.

Editing by John Stonestreet

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