European stocks, dollar bounce after robust U.S. jobs data

LONDON (Reuters) - European equities advanced while the dollar held near four-year highs against a basket of currencies on Monday after stronger-than-expected U.S. jobs data eased concerns about global growth.

The dollar notched its 12th consecutive week of gains since early July as Friday's non-farm payrolls report fed speculation the Federal Reserve will hike interest rates by mid-2015.

The upbeat U.S. data was in stark contrast with the outlook in Europe, where German industrial orders posted their biggest monthly drop since 2009 in August. That fueled expectations the European Central Bank will have to launch a Fed-style asset purchase scheme known as quantitative easing to support growth.

This spurred the weakness in the euro, adding to the allure of European equities and euro zone bonds which had stumbled last week after the ECB gave no fresh hint of imminent QE.

The FTSEurofirst 300 index of top European shares was up 0.6 percent, led by German equities as Frankfurt, closed for a public holiday on Friday, caught up with the rebound in the rest of Europe.

"The steady drop in the euro is boosting sentiment among equity investors in Europe. It won't have an immediate impact on the next earnings season, but people are starting to price it in as a tailwind for the coming quarters," said Alexandre Baradez, chief market analyst at IG France.

"In the short term, however, the market remains driven by what the central banks say about their monetary policies, with still a lot of question marks on the timing for the Fed's first rate hike and the prospect of ECB quantitative easing. So we're expecting some turbulence ... in the next little while."

Tokyo's Nikkei jumped 1.3 percent, while Hong Kong shares rose 0.3 percent , as pro-democracy activists scaled down protests.

The U.S. Labor Department reported non-farm payrolls rose 248,000 in September, 33,000 more than the median forecast in a Reuters poll while the jobless rate fell 0.2 percentage points to a six-year low of 5.9 percent.

The U.S. dollar's 12th consecutive week of gains since early July is its best run up in more than 40 years, with the jobs report highlighting the strength of the United States relative to several other major economies, whose sluggishness has raised doubts over the strength of the global recovery.

The dollar index, which tracks the greenback against six major currencies, was down slightly on Monday at 86.476 , not far from a four-year high of 86.746 hit on Friday.

The euro traded at $1.2534 , having fallen to $1.25005 on Friday, its lowest level in more than two years.

ECB OUTLOOK

Euro zone bond markets were focused on the worsening economic outlook in the currency bloc, which has reignited speculation the ECB will have to embark on QE in coming quarters to revive inflation and the economy.

German industrial orders fell 5.7 percent on the month, undershooting expectations of a 2.5 percent drop. [ECONDE]

"The factory orders report in Germany was quite a big disappointment. It confirms the general downtrend in activity in the manufacturing sector and explains the fall in yields," said Elwin de Groot, senior market economist at Rabobank.

"There was a slight disappointment after the ECB meeting last week ... but such weak data will only push the ECB further on the road to new measures and that eventually may include QE."

German 10-year bond yields , the benchmark for euro zone borrowing costs, fell 2 basis points to 0.91 percent - just 4 bps away from their record lows. They had touched 0.95 percent after the ECB meeting. All other euro zone bond yields fell 2-3 basis points.

Commodity prices came under pressure from the dollar's relentless rise.

Gold hit a 15-month low of $1,183.51 per ounce . It last stood at $1,188.89, down 0.2 percent on the day.

Brent crude oil prices dropped 0.4 percent to $91.98 per barrel, threatening to fall below a 27-month low of $91.48 hit on Friday on fear of over-supply.

Elsewhere, among emerging markets, there will be a focus on Brazil, which will go to a run-off in its presidential election on Oct. 26.

Leftist President Dilma Rousseff failed to score a large enough victory to settle the contest in Sunday's first round. She will face pro-business rival Aecio Neves, who made a dramatic late surge into second place.

Over the past month, the Brazilian real and shares have tended to weaken when polls show Rousseff gaining, as many investors believe a more market-friendly administration could help boost demand for Brazilian assets.

(Additional reporting by Blaise Robinson in Paris and Marius Zaharia in London; Editing by Catherine Evans)