SYDNEY/TOKYO: The US dollar hit a fresh three-year high against a basket of major currencies on Monday as market expectations grew that the Federal Reserve will scale back stimulus as early as September following solid jobs growth. But weakness in Chinese and other Asian shares on worries about China's tighter credit policy hampered investor risk sentiment, helping the yen recover from a five-week low against the dollar. The dollar index rose as high as 84.588 early in the Asian trading day, reaching a level not seen since July 2010. It was last at 84.534. The index jumped 1.5 per cent on Friday in its best one-day gain in 20 months after data showed employers added a higher-than-expected 195,000 new jobs to their payrolls last month. That took the average job growth to 196,333 per month in the second quarter, in line with the 200,000 jobs that economists say the Fed wants to see each month. Analysts at Barclays Capital said the data has reinforced their views the dollar will gain further momentum in the second half of 2013 as the Fed begins to normalise monetary policy. "We believe steady improvement in labour market conditions will be enough for the Fed to start tapering its asset purchases in September," they wrote in a report. In contrast, they expected the European Central Bank, Bank of Japan and Bank of England to stay dovish for the foreseeable future due partly to ongoing headwinds for their respective economies. "The contrast in monetary policy outlooks among these banks suggests further upside in the dollar against the euro, sterling and yen." The divergence is clear in bond markets, with 10-year Treasury yields spiking 23 basis points on Friday to 2.75 per cent, highs last seen in August 2011. The spread between Treasury and bund yields gapped to the widest since 2006. The euro traded at $1.2817, not far off a seven-week trough of $1.2806 plumbed on Friday. The dollar also rose to as high as 101.54 yen, its highest level since late May, though selling from Japanese exporters curbed its gains. The dollar looks solid on daily Ichimoku charts, where it has broken above the cloud top, at 100.83, a major bull signal. Still, the US currency gave up gains to last trade at 101.16 yen, down slightly from late US levels last week, as Chinese shares were down around two per cent, underscoring concerns about Beijing's plan to choke off credit. "On the whole, the dollar looks likely to gain further. But then again, if Chinese shares face more pressures, we could see a bigger dip in the dollar/yen," said Koichi Takamatsu, forex manager at Nomura Securities. The dollar also rose against commodity currencies, knocking the Australian dollar back towards a 34-month trough of $0.9036 plumbed last week. The Aussie was last at $0.9048, down 0.2 per cent on the day, undermined by soft Chinese shares.

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