U.S. yields climb, S&P futures close higher after jobs report

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. Treasury yields climbed and U.S. index futures closed modestly higher after employment data for March indicated the labor market remains tight, but was largely in line with market expectations.

Nonfarm payrolls increased by 236,000 jobs last month, the Labor Department said, compared with the 239,000 expectation of economists surveyed by Reuters.

Data for February was revised higher to show 326,000 jobs were added instead of 311,000 as previously reported. The unemployment rate dipped to 3.5% from 3.6% in the prior month.

U.S. stock index futures erased losses and turned higher after the report, while the dollar strengthened and U.S. Treasury yields rose as expectations the Federal Reserve will hike rates at its May meeting increased.

"Obviously, the headline number is basically exactly the estimate. There is really just nothing here that wasn’t where consensus was," said Alex Coffey, senior trading strategist at TD Ameritrade in Chicago.

"We sort of have a situation where this doesn’t change the game, it allows us to continue on to the next data point and that lack of surprise is seen as optimism."

The U.S. stock market is closed until Monday due to the Good Friday holiday. European markets are closed on both Friday and Monday.

MSCI's gauge of stocks across the globe shed 0.01%. E-mini futures for the S&P 500 closed up 0.23% following the data.

In Asia, Japan's Nikkei share average rose on Friday, trimming its weekly decline, as a weaker yen and higher Wall Street close overnight boosted sentiment ahead of the payrolls report.

Still, the jobs report heightened expectations the Fed will raise rates at its next meeting, with the market pricing in a 69% chance for a 25 basis point rate hike, up from 49.2% on Thursday, according to CME's FedWatch Tool.

"While the headline number of payrolls is still elevated, hours are being cut with the index of aggregate weekly hours falling two months in a row," said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin.

"The employment situation has gone from red hot to merely smoldering."

Benchmark 10-year notes were up 8.9 basis points to 3.379%, from 3.29% late on Thursday.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 15.3 basis points at 3.974%.

The dollar index rose 0.167%, with the euro down 0.13% to $1.0906.

(Reporting by Chuck Mikolajczak; Editing by Jan Harvey)