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By Naomi Rovnick and Nell Mackenzie
LONDON (Reuters) - Global stocks rallied on Friday and Treasuries fell out of favour as optimism about an easing of U.S.-China trade tensions and better-than-expected U.S. jobs data alleviated some anxiety about U.S. tariffs leading to a global economic slowdown.
MSCI's world share index rose 0.6% to levels last reached before its sharp slide early last month when U.S. President Donald Trump unveiled his Liberation Day tariffs.
Friday's payrolls report showed U.S. employers added 177,000 new hires last month, beating expectations for jobs growth to have slowed to 130,000, and the S&P 500 rose 1% and the Nasdaq gained 0.9% in early trading.
The U.S. unemployment rate also held steady at 4.2%, in a sign of strength that some investors said would only be temporary.
"The U.S. economy is still on a relatively strong footing," Arbuthnot Latham global investment strategy director Jason Da Silva said.
"But what happens with tariffs is the number one indicator to look out for."
Friday's fresh boost to economic confidence knocked U.S. government debt, with 10-year Treasury yields most recently 4 basis points (bps) higher at 4.27% as prices fell.
Treasuries also came under pressure from fears of Japan using its massive stockpile of U.S. debt holdings as a negotiating tool in trade talks.
The market mood was already upbeat ahead of the non-farm payrolls report after China said the U.S. has repeatedly expressed its willingness to negotiate on tariffs and that Beijing's door was open for talks.
But uncertainty about what level of trade duties the White House will eventually impose on China has also led to a marked deterioration in U.S. businesses' long-term outlooks, the latest round of quarterly earnings results has shown.
Apple < AAPL.O> trimmed its share buyback on Thursday and warned tariffs could cost it $900 million this quarter. General Motors has warned of a $4-$5 billion hit to earnings and American Airlines has withdrawn profit forecasts.
"What Trump policy has put into motion is a longer-term threat and will show up over the next months not days," Laffler Tengler Investments head of fixed income Bryon Anderson said.
But that long-term fear was not evident in markets on Friday, with European shares last up 1.6%, Germany's DAX adding 2.4% and the UK's FTSE 100 gaining 1%.
MSCI's broadest index of Asia-Pacific shares outside Japan also touched its highest level since March 20 earlier in the day.
The bullish mood built up even after data this week showed the U.S. economy shrank for the first time in three years in the first quarter and that Chinese factory activity contracted at the fastest pace in 16 months in April.