/WWW.FXSERVER.COM/ By Jeremy Gaunt, European Investment Correspondent
LONDON, April 4 - The dollar rose and oil prices fell on Friday after U.S. forces seized Baghdad airport, but European stocks and safe-haven government bonds drifted in an atmosphere of uncertainty about the next phase of the war.
Investors also began turning their attention to something other than the Iraq battlefield, bracing for gloomy U.S. jobs data later in the day.
U.S. troops took control of Saddam International Airport in the first ground attack on the Iraqi capital. Military analysts said the U.S. forces could use it as a forward operating base in any battle for the city of five million people.
"War is heading in one direction and U.S. troops seem to have got to Baghdad quicker than thought, but the economic data is weaker-than-expected," said Rupert Thompson, global equity strategist at E*Trade Securities.
Financial markets have risen and fallen in recent weeks as views on how long the conflict will last have ebbed and flowed. A poll of fund managers taken on Tuesday produced a consensus forecast for it to last six more weeks.
The dollar was a major mover on Friday, rising against major currencies. It was at $1.0720 against the euro, a third of a percent up from $1.0758 in late New York and well up on Wednesday's trough of $1.0960.
The greenback was more than half a percent up on the Japanese yen at 120.12 yen.
"They have a grip on the airport now and they may encircle other areas (in Baghdad) this weekend. So the dollar is favoured," said a dealer at a European bank.
U.S. JOBS DATA IN FOCUS
However, traders were also looking ahead to U.S. non-farm, payrolls data for March at 1330 GMT, which is expected to show a rise in the unemployment rate to 5.9 percent from 5.8 percent in February.
Worries about the U.S. economy came to the fore again on Thursday after reports showed the services sector shrank in March and a big jump in jobless claims last week.
"If payrolls are weak you could get a bit of dollar selling but people will be very reluctant to be short of dollars over the weekend given that the crunch is so close in the Iraq situation," said Aziz McMahon, foreign exchange strategist at ABN Amro.
European shares fell after recent run-ups. The FTSE Eurotop 300 index . of pan-European blue chip shares was down 0.13 percent while the narrower DJ Euro STOXX 50 index .was essentially flat.
Tokyo stocks ended higher. The Nikkei index closed up 0.7 percent and the broader TOPIX index rose 0.24 percent.
U.S. stock index futures were slightly higher in early European trade on Friday, signalling a possible rise n on Wall Street later in the day.
Gold, seen as a safe haven for investors in troubled times, drifted lower. Spot gold was quoted at $323.40/324.10, down from $324.95/325.65 at Thursday's New York close. Euro zone government bond yields, which move inversely to the price, hovered around unchanged.
"People aren't too certain about what the weekend will bring so they are trying to position themselves," one Frankfurt-based debt trader said.
The two-year German Schatz note was yielding 2.48 percent, flat on the day. The benchmark German 10-year German Bund yield was up 0.2 basis points at 4.17 percent.
Oil prices fell, under pressure from growing supplies and the rapid U.S. military advance on Baghdad.
U.S. light crude was down 66 cents at $28.31 a barrel after gaining 41 cents in New York on Thursday. The contract is down seven percent so far this month.
"No-one wants to go home long over the weekend when we're (U.S.-led forces) just outside Baghdad and could be in the capital within days," a New York-based trader said.
London Brent crude fell 60 cents to $24.90 a barrel. (Additional reporting by Nigel Stephenson)