GLOBAL MARKETS-Global shares gain, bonds supported as oil drops, jobs data misses expectations

By Samuel Indyk and Stella Qiu

LONDON, Oct 2 (Reuters) - Global shares rose on Friday as wild volatility in bond and currency markets eased and oil prices fell, while weaker-than-forecast US jobs data scuppered chances of a rate hike from the Federal Reserve later this month.

Nonfarm payrolls increased by 29,000 jobs last month after a downwardly revised 133,000 rise in August, the Labor Department's closely watched employment report showed on Friday. Economists polled by Reuters had forecast payrolls advancing 90,000.

Bets on a second rate rise from the Federal Reserve this month faded after the data. Markets now assign a 15% chance of a hike in October from around 25% before the data.

Two top policymakers said this week they wanted more data before deciding what to do next with interest rates. Meanwhile, a move in December is still fully priced in.

Schroders senior economist George Brown said today's figures may ease some concerns that previous interest rate cuts from the Fed could stoke inflation problems, but that it doesn't alter the inflation backdrop.

"The Fed looks likely to unwind last year's cuts," Brown said.

"The bigger question is whether rates ultimately need to be taken into genuinely restrictive territory to bring inflation back under control."

Wall Street futures extended gains after the data. Nasdaq futures were up 1.2% and S&P 500 futures gained 0.8%.

The benchmark 10-year Treasury yield fell 6 basis points to 5.1717%, down from the 24-year high of 5.3445% reached the day before.

The two-year yield , which is sensitive to changes in expectations for interest rate policy, fell 6.5 bps to 4.7204%.

FRENCH BONDS UNDERPERFORM

In Europe, longer-dated sovereign bond prices rose on the day, although those in more indebted countries, like France and Italy, lagged the gains in Germany, reflecting growing investor demand for protection against rising fiscal risks.

The German 10-year yield , the euro zone benchmark, was down 12 basis points on Friday, as investors preferred the relative safety of German bonds compared to their euro zone counterparts. Bond yields move inversely with prices.

In France, the 10-year yield was down slightly at 4.927%, pushing the gap between the German and French 10-year yields to over 154 bps, the widest level since the euro zone debt crisis in 2011.

"I wouldn't call it a crisis yet, but it looks like it has the potential to be one," said George Lagarias, chief economist at Forvis Mazars.

"If it goes on for a couple more weeks then we'll be talking about a crisis in the bond market."

Global bond markets have been under a sustained selloff in recent weeks as the US-Israeli war with Iran pushed up energy prices again, complicating the inflation outlook and further straining already stretched public finances.

But oil prices fell on Friday, providing some relief for stocks and bonds, as the energy market refocused on signs of recovering supplies from the Middle East and EU countries discussed a proposal to release additional diesel stockpiles.

US West Texas Intermediate crude futures fell 3.7% to $89.43 a barrel. Brent crude futures were down 2.7% to $99.45 a barrel, while European gasoil futures , a benchmark for diesel prices, fell about 5% to $1,378 a metric ton.

The relief in oil prices also supported European shares, with the pan-regional STOXX 600 index .STOXX up 0.8%, although it is still heading for a weekly drop of about 1%.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.1% and settled for a weekly decline of 1.3%. Japan's Nikkei .N225 dropped 0.9% but gained almost 3% for the week.

Mainland Chinese markets are closed through next Wednesday for a public holiday. Hong Kong's Hang Seng index .HSI slid 2.7% on Friday after a holiday.

DOLLAR DIPS AFTER DATA

The US dollar index , which gauges the currency against six peers, fell 0.1% to 101.86 after the US data, having rallied 0.6% the day before to hit the highest level since April 2025. It was still set for a third straight week of gains, up about 0.8%.

The rout in European bonds helped pin the euro lower and benefited the safe-haven yen and Swiss franc.

The euro was at $1.1248, having weakened 0.8% on Thursday to hit the lowest level since May 2025. The Swiss franc was up sharply against both the dollar and euro .

The yen firmed 0.6% to 157.11 per dollar after data showed underlying inflation in Japan's capital accelerated to an annual rate of 2.7% in September, bolstering the case for further interest rate hikes.