LONDON: Mounting expectations that the United States will raise interest rates in December for the first time in nine years dominated world financial markets Monday, weighing on stocks but underpinning the dollar.
A forecast-busting surge in US jobs last month, revealed in official data on Friday, sent the dollar soaring against the euro and emerging market currencies, as traders banked on a US rate rise next month.
European stock markets fell as brokers pondered the impact of higher US rates. London's FTSE dipped 0.7 percent, Frankfurt's DAX 30 eased 1.3 percent and Paris' CAC 40 dropped 1.5 percent.
Stock markets across in Asia had a fairly solid showing despite further weak trade data out of China, while US markets were lower around mid-session.
Friday's strong US jobs report "pretty much made it a given that a US rate hike will take place after all in 2015," said Markus Huber, senior analyst at broker Peregrine & Black.
Financial markets have for months speculated about when the US Federal Reserve will start to raise interest rates from record-low levels.
But now that a hike appeared imminent, markets were actually quite sanguine, brokers Capital Economics noted.
"The gradual return of US interest rates towards more normal levels is unlikely to be the seismic shock that many have been fearing," it said in a note.
The likelihood of an increase in December has lifted the dollar in anticipation of higher returns for those investing in the US currency.
In afternoon London trade on Friday, the European single currency had slumped to $1.0707 -- the lowest level since the end of April.
On Monday, the euro dipped as low as $1.0720 in Asian deals, before stabilising at around $1.0771 in London trade.
The US Labor Department on Friday said that the world's biggest economy created 271,000 net new jobs in October, almost twice as many as September, while the unemployment rate fell to a seven-and-a-half year low of 5.0 percent.
The figure easily outstripped expectations and tempered fears that a slowdown in the world economy, particularly in China, had spread to the United States.
Following a "frantic" market reaction to the US unemployment data on Friday, "things quietened down a bit this Monday with little concrete data for investors to chew over," said Connor Campbell, analyst at Spreadex trading group.
"That unfortunately leaves the markets free to speculate over the impending US rate hike, with 70 percent of analysts now expecting the unwanted Christmas present of a December lift-off."
Federal Reserve chief Janet Yellen earlier this year said she expected a rise before 2016, albeit incremental, as the US economy gets back on track.
The situation is less bright in China, the world's second-biggest economy after the United States.
Official data Sunday showed that China recorded its highest trade surplus on record last month, as plunging imports highlighted the country's continued struggle to boost domestic demand and prop up sagging growth.
As the planet's biggest trader in goods and a key driver of already subdued world growth, the figures will also add to signs the global economy is facing its toughest year since the height of the financial crisis.
The Organisation for Economic Co-operation and Development (OECD) on Monday cut its forecast for global growth to 2.9 percent this year and 3.3 percent in 2016, saying subdued inflation should support a gradual pick up in the world economy.
However, the OECD's chief economist called "deeply concerning" a stagnation in global trade that has in the past "been associated with global recession".
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