World shares and Treasury yields rose to eight-month highs on Friday, sending bond prices lower, after a strong showing by the U.S. services sector, signaling a steady recovery by the U.S. economy.
Further pressuring U.S. government debt prices, a top Federal Reserve official said the Fed could still be in a position to halt its asset purchases in 2013 though that would require the U.S. economy to "perform well.".
The vast U.S. services sector grew in December at its fastest clip in 10 months, boosted by a rise in new orders, according to a report from the Institute for Supply Management.
Benchmark U.S. Treasury yields resumed their climb following the ISM report, after having cut the advance following a U.S. jobs report.
The 10-year U.S. Treasury note was last down 4/32, with the yield at 1.9257 percent, an eight-month high. Yields earlier hit a high of 1.9755 percent.
European equities rose, partly on signs that Europe may be through the worst of its economic slump, while growth in the world's private sector businesses hit a nine-month high at the end of last year according to a JPMorgan gauge.
"The economy is recovering at the hands of Fed policy and it is getting restored to a point of critical mass where the Fed will eventually remove itself," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
On Thursday Fed minutes disturbed the bond market, portraying Fed officials as being more concerned about the potential risks of the U.S. central bank's asset purchases on financial markets, even as they continue an open-ended stimulus program for now.
"We could see the central bank tapering off its bond buying across 2013, but do not see it walking away from low interest rates quickly," Miller Tabak's Wilkinson said.
An index of global shares was on track to post its best week in six, and its sixth week of gains in the last seven, as a last-minute budget deal in the United States and strengthening global economic data drew investors into riskier assets.
The Dow Jones industrial average rose 22.8 points or 0.17 percent, to 13,414.16, the S&P 500 gained 4.8 points or 0.33 percent, to 1,464.17 and the Nasdaq Composite added 1.67 points or 0.05 percent, to 3,102.23.
A 2.5 percent decline in Apple
An MSCI index of global shares rose 0.3 percent and was up 3 percent for the week, its best weekly performance since late November. A gauge of equities across Europe closed up 0.4 percent.
The pace of U.S. job growth slowed slightly in December, keeping the unemployment rate steady at 7.8 percent but there were indications of a slow but steady recovery in the data.
The stubbornly high U.S. unemployment rate was unlikely to make the Federal Reserve rethink its easy-money policies, which have been propping up the recovery.
Fed minutes from its latest meeting, published on Thursday, suggested the U.S. central bank could hasten the end of its asset purchases, pushed benchmark Treasury yields to eight-month highs.
Tom Porcelli, chief U.S. economist at RBC Capital markets in New York, said with the payrolls data "basically where it was when the Fed decided to do more quantitative easing last month," a change in policy was not on the horizon - a bullish call for stocks.
The dollar rose to a near 2-1/2 year high against the yen on speculation of more monetary easing in Japan.
"The reason that the dollar is holding up better against the yen than anywhere else is because the main focus is on the Japanese monetary policy rather than the U.S. monetary policy," said Vassili Serebriakov, FX Strategist at BNP Paribas in New York.
Tentative signs that the euro zone economy may have passed the worst of its downturn also supported risk assets.
Markit's Eurozone Composite PMI, which gauges business activity across thousands of the region's companies, rose in December to 47.2, from 46.5 in November - below the 50 line which divides growth from contraction but at its highest level since March.
Brent crude shed 0.9 percent to $111.17 a barrel while U.S. crude was little changed at $92.93.
Spot gold pared a losses that took it to its lowest since August, but was still down on the day at $1,651.80 an ounce.
