GLOBAL MARKETS-Dollar at 3-year high after U.S. boost, shares gain
* Dollar hits 3-year high vs basket, 6-week high vs yen European shares gain 1.4 pct, Wall Street seen opening higher
* Bunds steady after Friday sell-off; Greece aid deal in focus
* Egyptian tensions keep oil near 3-month high
LONDON, July 8 (Reuters) - The dollar hit a three-year high on Monday and gold was hovering near a three-year low after last week's strong U.S. jobs data fanned expectations that the country's central bank could soon start scaling back its stimulus. Wall Street was seen opening roughly 0.5 percent higher with momentum still intact after last week's strong finish and with focus on the first flurry of Q2 company earnings reports. European shares were up 1.4 percent ahead of the Wall Street restart as investors took comfort that while the U.S. may be shifting out of crisis mode, the European Central Bank and Bank of England plan to keep support firmly in place. The dollar's strength remained the main focus, however, after the DXY index, which measures the greenback against a basket of major currencies, rose to 84.588, its highest since July 2010, before a slight slip put it back at 84.400. Friday's upbeat U.S. jobs data bolstered the view that the Federal Reserve could soon start reducing its $85 billion a month stimulus, but analysts are now wondering whether the dollar's rise can continue at its recent pace. "Clearly the dollar is on the front foot and so the question is: can it sustain the momentum?" said Rabobank senior currency strategist Jane Foley. "As it gains ground it acts as implicit monetary tightening so that could make some of the Federal Reserve governors quite nervous. I do think there will be plenty of opportunity to take some profits in these dollar positions." Europe's broad FTSEurofirst 300 stock index was up 1.1 percent ahead of the U.S. restart, as jumps of 2.3 and 1.7 percent on Frankfurt's DAX and Paris's CAC 40 helped it some of ground lost at the end of last week. Focus was also on Brussels where Greece was expected to reach a deal over its latest aid payment at a meeting of euro zone finance ministers later in the day, and there was relief after weekend moves to calm Portugal's political crisis.
BOND CALM After last week's turmoil in Portugal and Greece and Friday's volatility following the strong U.S. jobs data, Europe's bond markets were largely calm, with benchmark German Bunds steady and euro zone periphery debt all higher
"I think the break above the May high for the DXY index has reassured people that we are seeing a return to normality across for markets after some of the pretty indiscriminate selling we saw in June," said Nick Parsons, Global Head of Foreign Exchange at National Australia Bank. "I'm encouraged by today's price action... We have got bond yields a couple of ticks lower, we've got currencies stable against a background of a strong dollar and we have got some stability in equities." The Fed's plans to cut back its stimulus programme as the U.S. economy recovers has been the main driver of financial markets over the last month, pushing up global bond yields and triggering big swings in other asset markets. Gold, often favoured as a hedge against inflation which can be a by-product of stimulus programmes, was up 1 percent at $1,227.59 an ounce but remained near a three-year low after its recent sharp sell-off.
EMERGING VOLATILITY Emerging markets have also been particularly hard hit by the Fed's policy shift. Investors had directed much of the cheap Fed cash into emerging assets in search of higher yields and that trend is now reversing as investors look to increase their exposure to the United States again. The Indian rupee hit a record low on Monday, leading declines among emerging currencies, with sentiment also bruised consolidation in industries plagued by over capacity.
Elsewhere, the rising U.S. dollar nudged Brent crude oil futures below $108 a barrel, although an escalation of political tensions in Egypt prevented too much slippage. State television said 42 people were killed on Monday in Cairo, when the Muslim Brotherhood said shots were fired at supporters of deposed President Mohamed Mursi near the military building where he is being held. "What's underpinning the strength in the oil market is the tensions out of the Middle East," said Ben Le Brun, an analyst at OptionsXpress in Sydney. "That's going to continue to put a floor under oil prices."