* Employers add 126,000 jobs in March
* Benchmark yields hit nearly two-month lows
* Equity futures fall after jobs data
* U.S. dollar falls against euro (Updates prices, adds equity futures data, comments)
By Sam Forgione
NEW YORK, April 3 (Reuters) - U.S. Treasuries prices rallied and equity futures stumbled on Friday after weaker-than-expected U.S. jobs data for March became the latest in a string of underwhelming economic figures that called the strength of U.S. growth into question.
Labor Department data showed U.S. employers added just 126,000 jobs in March, the fewest in more than a year. The figure was well below expectations for a gain of 245,000, according to a Reuters poll of economists.
Recent data suggests the first quarter ended on a weak note, weighing on investor sentiment. The bond market rallied sharply, pushing the benchmark 10-year Treasury note to its lowest level in nearly two months, as the expectation for a Federal Reserve interest-rate hike by September diminished.
Trading was thin on Friday due to the Good Friday holiday, as most overseas markets and major U.S. stock exchanges were closed, so the reaction in both U.S. Treasuries and in U.S. equity futures was affected by the light volume.
“The sharply lower-than-consensus job creation for March is a reminder that the U.S. economic recovery is yet to reach escape velocity,” said Mohamed El-Erian, chief economic advisor at Allianz Se in Newport Beach, Calif.
“The economy’s structural growth momentum is not yet strong enough to decisively overcome short-term weather disruptions and headwinds from abroad.”
The report weakened the dollar, continuing a trend of weakness in the greenback that followed a 20-percent-plus rally in the currency against major trading partners over a year-long period. With European economic data coming in better than anticipated, the dollar’s recent sluggishness may have further to run.
The data reduced the market’s expectations for a rate increase by September. Most Wall Street brokerages who deal directly with the Federal Reserve see that month as the likely moment for the Fed to raise rates, but the strong dollar, decline in oil and weakness abroad may mean the Fed could hold off further.
“It was a weak report, all things considered,” said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York. She said, however, that severe winter weather may have affected the figure and that more confirmation is needed to “give up” on the U.S. economic recovery.
Yields on benchmark 10-year Treasury yields, which move inversely to prices, hit nearly two-month lows of 1.8 percent, while three- and two-year note yields hit two-month lows of 0.77 percent and 0.47 percent, respectively.
U.S. 30-year Treasuries prices rose more than a point, but their session low yield of 2.445 percent remained above Thursday’s nearly two-month low of 2.441 percent. The U.S bond market will close early on Friday.
U.S. 10-year Treasury prices were last up 19/32 to yield 1.84 percent, from a yield of 1.9 percent late Thursday. U.S. three-year notes were last up 5/32 in price to yield 0.8 percent, from a yield of 0.86 percent late Thursday.
U.S. stocks were closed on Friday. U.S. stock futures fell on the jobs data and U.S. S&P e-mini equity futures unofficially ended down 19.75 points, or 1 percent, to 2039.75, indicating a lower open for stocks on Monday.
The U.S. dollar tumbled on thin volume, with the euro immediately spiking to a 1 percent gain against the greenback following the jobs report. The euro hit $1.10270 on the EBS trading platform, the highest since March 26.
“I‘m not pushing the panic button yet. It is still a Q1 number. I don’t think the Fed will either. We’re not getting a clean read on the economy yet. We had a bad winter for most of the northeast and any clean read for the economy will come in the next couple of months,” said Win Thin, currency strategist at Brown Brothers Harriman in New York. (Reporting by Sam Forgione; Additional reporting By Daniel Bases; Editing by Chizu Nomiyama, Bernard Orr)