By Ellen Freilich
NEW YORK (Reuters) - U.S. stocks and bonds rallied on Monday while the dollar fell against most major currencies as upbeat economic data from China allowed the S&P 500 to advance for the fifth straight day and concern about the possibility of a Western strike against Syria fed a bid for safe-haven U.S. debt.
Following Friday's soft U.S. jobs report, debate persisted over when, and by how much, the U.S. Federal Reserve would begin to reduce its stimulative bond-buying program. Most economists think the Fed will announce a cut in bond purchases next week, a Reuters poll showed on Monday.
Benchmark 10-year notes were last up 10/32 in price to yield 2.90 percent, down from 2.94 percent on Friday.
"The market is still under the impression that the Fed will announce some sort of tapering next week," said Jason Rogan, managing director in Treasuries trading at Guggenheim Partners in New York.
Concerns over Syria fed the bid for Treasuries as the White House worked on persuading Congress to approve a military strike to punish Syrian President Bashar al-Assad.
But a U.S. stock market rally trimmed bonds' best gains.
Stocks rallied after upbeat Chinese export data lessened concern about a sharp slowdown in a key developing economy.
"Even if you are skeptical of Chinese data, this fits a pattern of global demand turning the corner, inching higher," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
The Dow Jones industrial average rose 99.39 points or 0.67 percent, to 15,021.89, the S&P 500 gained 10.4 points or 0.63 percent, to 1,665.57 and the Nasdaq Composite added 30.507 points or 0.83 percent, to 3,690.517.
The upswing in Chinese exports lifted other world equity markets as well.
MSCI emerging equities index rose 1.8 percent to a three-week high and has rallied about 4 percent in the last four trading sessions, helped by the stronger Chinese data.
The MSCI's world equity index gained 0.89 percent for a sixth successive daily rise.
European shares, however, slid as disruptions to business in the Middle East hurt oil firm BG Group
The broad FTSE Eurofirst 300 index was 0.15 percent lower though it is still up 6.4 percent since the start of July, more than twice as much as the U.S. S&P 500.
The dollar slipped against most major currencies Monday amid continued debate over how soon the Fed would taper its stimulus program following a disappointing U.S. jobs report last week.
But the dollar rose against the yen, which lost ground as Japanese stocks rallied after Tokyo won its bid to host the 2020 Olympics and got an upgrade of second-quarter economic growth.
Better-than-expected euro zone sentiment data lifted the euro. The euro rose 0.67 percent against the dollar, while the dollar gained 0.46 percent against the yen. The dollar index was down 0.48 percent on Monday, extending Friday's 0.6 percent drop.
Expectations the Fed would announce a tapering of its monthly bond purchases at its September 17-18 policy meeting have buoyed the dollar lately and are still largely responsible for the 2.8 percent gain in the dollar index this year. A reduction in stimulus will lift U.S. Treasury yields and bolster the appeal of dollar-denominated assets.
While the euro was supported by the positive Sentix sentiment data, investors kept a wary eye on Rome, where the Italian Senate will debate whether to expel former premier Silvio Berlusconi from parliament. Such an expulsion could threaten the country's ruling coalition.
A German general election later this month also kept the euro in check.
The dollar's gains were pronounced against the yen. The Olympics win for Tokyo could translate into a big boost for the Japanese economy and a shot in the arm for Prime Minister Shinzo Abe who is attempting to inflate the economy after decades of sub-par growth and deflation.
The Tokyo bid committee estimates hosting the Olympics would boost the economy by 3 trillion yen over the next seven years.
The news sent the Nikkei, to a five-week high and the yen, which has an inverse correlation with Tokyo shares, slipped. The yen is a safe-haven currency and tends to move in the opposite direction to riskier assets like stocks. Japanese stocks were also helped by a sharp upward revision of second-quarter growth data.
The dollar hit a high of 100.10 yen earlier on Monday. The euro rose 1.15 percent to 131.11 yen.
Both the dollar and the euro have gained more than 14 percent this year against the yen as the Bank of Japan embarked on a massive monetary stimulus program in April.
"The Olympics bid has added a bit more to the underlying negative yen trend," said Paul Robson, currency strategist at RBS Global Banking.
Meanwhile, the Australian dollar hit a three-week high at $0.9233, benefiting from Chinese trade data. China is Australia's biggest export market. The Aussie last stood at $0.9210, up 0.33 percent. It barely reacted to Saturday's national election result.
China publishes industrial production and retail sales numbers on Tuesday, which should add to signs the economy is on track to hit its target of 7.5 percent growth this year.
Oil markets looked past the Chinese data to focus on Syria. Russia and China again urged the United States to avoid military action ahead of a key vote by the U.S. Senate.
The global Brent crude benchmark fell $1.97 to $114.14. U.S. oil lost 97 cents to $109.56.
The U.S. Treasury will sell $65 billion in new three-year, 10-year and 30-year bonds this week.
(Additional reporting by Karen Brettel, Nick Olivari and Rodrigo Campos; Editing by Chris Reese and Nick Zieminski)
