LONDON (Reuters) - Pay deals awarded by British employers cooled for the first time this year in the quarter to July, which may calm the worries of Bank of England officials who fear wage growth is feeding inflation, a survey showed on Wednesday.

Median basic pay deals in the three months to the end of July fell to 5.7% following six consecutive quarters at a record 6%, human resources publication and data provider XpertHR said.

Pay awards remained below the rate of inflation. British consumer price inflation cooled to 6.8% in July from 7.9% in June.

The BoE, which hiked interest rates to 5.25% in August to tame stubborn inflation, is closely monitoring wage growth in the private sector and has said it will keep raising Bank Rate if inflationary pressure persists.

Sheila Attwood, senior content manager at XpertHR, said pay awards had likely hit their peak and expects the gap between pay deals and inflation to narrow.

"Our figures of a decrease in wage rises might ease minds at (the) Bank of England, fearful of the effects of a wage-price spiral," Attwood said.

However, official figures from the Office for National Statistics showed annual wage growth excluding bonuses rose to 7.8% in the three months to June, the highest in records going back to 2001.

XpertHR said median pay awards for the public sector stood at 5% in the year to July, up from 3.2% in the year before.

(Reuters) - The labels “dove” and “hawk” have long been used by central bank watchers to describe the monetary policy leanings of policymakers, with a dove more focused on risks to the labor market and a hawk more focused on the threat of inflation.

The topsy-turvy economic environment of the coronavirus pandemic sidelined those differences, turning U.S. Federal Reserve officials at first universally dovish as they sought to provide massive accommodation to a cratering economy, and then, when inflation surged, into hawks who uniformly backed aggressive rate hikes. Now, divisions are more evident, and the choices - to raise rates again, skip for now but stay poised for more later, or take an extended pause – more varied.

All 12 regional Fed presidents discuss and debate monetary policy at Federal Open Market Committee meetings, held eight times a year, but only five cast votes at any given meeting, including the New York Fed president and four others who vote for one year at a time on a rotating schedule.

The following graphic offers a stab at how officials stack up on their outlook for Fed policy and how to balance their goals of stable prices and full employment. The designations are based on comments and published remarks; for more on the thinking that shaped these hawk-dove designations, click on the photos in the graphic.

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Note: Fed policymakers have been driving up borrowing costs since March 2022 to bring down high inflation, and in July they increased the target policy rate range to 5.25%-5.5%. Most policymakers as of June expected at least one more rate hike by year’s end. Longtime banker Jeff Schmid starts as Kansas City Fed president Aug. 21, and will be a voter in 2025. St. Louis Fed President James Bullard, a vocal policy hawk, left the Fed in July for a job in academia; the new chief will be a 2025 voter.

By Jamie McGeever

ORLANDO, Florida (Reuters) -Of all the economic and market curve balls investors have had to bat away this year, few will be as unexpected as the U.S. economy growing faster than China's.

This was not how the 2023 consensus looked in January, when China was poised to break out of its COVID lockdown like a coiled spring, and the United States would buckle under the Fed's most intense rate-hiking cycle in 40 years and slip into recession.

But China is struggling to get off the ground, and the narrative around the U.S. economy is shifting, remarkably, away from a 'soft landing' towards a 'no landing' scenario.

The contrast in the fortunes of the world's two economic superpowers has been extraordinary, perhaps the starkest reminder that investors' priors, rules of thumb and models have been completely ripped up by the pandemic.

China's economy grew by just 0.8% in the second quarter from the prior three months, down from 2.2% in a first quarter that was inflated by base effects as activity resumed after lockdown restrictions were lifted in December.

The U.S. economy expanded 1.2% in the second quarter, following 1.6% growth in the first three months of the year. Hardly gangbusters, but more than comparable to a rival that should have been powering ahead.

There's little to suggest the economic dynamics are about to reverse any time soon, while tensions between the two powers over tech and cyber security, espionage and trade remain heated.

According to the Atlanta Fed's GDPNow real-time growth tracker, the U.S. economy is set to expand at a 5.8% annualized rate in the third quarter, which would be more than double the rate of annualized growth in the first and second quarters.

Meanwhile, China's growth outlook continues to darken. Economists at Barclays (LON:BARC) just cut their third and fourth quarter GDP growth forecasts to 2.8% from 4.9% on a quarterly basis, and lowered their 2023 call to 4.5% from 4.9%.

That's comfortably below the Chinese government's full-year target of around 5%, a goal an increasing number of analysts think will be missed.

China's potential growth over the coming years is around double that of the United States, but there must be growing doubt about when China's GDP will surpass that of the U.S..

Analysts at Goldman Sachs still reckon it will be in 2035 but Desmond Lachman, a senior fellow at the American Enterprise Institute, told Reuters recently that it probably won't happen for at least 20 years.

TALE OF TWO LANDINGS

Ilaria Mazzocco, senior fellow with the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies, says China is resilient and any talk of an economic collapse is far-fetched.

But the era of double-digit and even high single-digit growth is over, and concerns over China's weaknesses have proven to be well-founded.

"There was a lot of talk in the last decade or so about China's rise and America's decline. What we're seeing now is a reversal of that discourse" she said.

"We may see similar growth rates between the U.S. and China, which is a concern for China because it is much poorer per capita," she added.

China's GDP per capita last year was $12,720, according to the World Bank, six times smaller than the U.S. equivalent of almost $76,000.

There's a danger that the current narrative - U.S. optimism and Chinese pessimism - gets overblown. The historic highs and lows of U.S. and Chinese economic surprises, respectively, will likely revert to mean as analysts adjust their expectations.

The 'long and variable lags' of 525 bps of Fed tightening have yet to fully hit the U.S. economy, and the highest bond yields since around the time of the Great Financial Crisis could choke Wall Street and Main Street later this year.

Equally, authorities in Beijing could surprise markets and revive the economy with major monetary and fiscal stimulus. They've done it before.

But there are good reasons why investors have pulled huge sums out of Chinese markets this year, why the gap between 10-year U.S. and Chinese bond yields is the widest since 2007, and why the yuan is also close to its weakest level since 2007.

Deflation, record youth unemployment, an imploding property sector, historically low bank lending and plunging trade with the rest of the world are problems that are unlikely to be fixed quickly.

"With this string of data disappointments, markets are likely to remain worried over prospects of a China hard landing," Dirk Willer and his emerging market colleagues at Citi wrote this week.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Kirsten Donovan)

By Lewis Jackson

SYDNEY (Reuters) - Australia's A$2.4 trillion ($1.54 trillion) pension sector grew its investments in local and foreign debt by more than A$20 billion over the past year as higher yields burnished an asset class overlooked in a country where equities traditionally rule.

The two largest pension funds grew fixed income investments in their primary vehicles, holding bulk of the pensions, in the last financial year. For the A$300 billion AustralianSuper, the country's largest fund, its fixed income allocation hit the highest level since at least 2013.

AustralianSuper told Reuters it had doubled debt assets to A$40 billion over the past year and added at least three new fixed income portfolio managers to its London office.

"We had a very low allocation to fixed interest for much of the last two or three years and are now building that back up again as rates start to normalise," said Katie Dean, head of fixed income, currency and cash at AustralianSuper.

Australian Retirement Trust, which manages A$240 billion, Sio lifted its fixed income allocation to 13.7% from 12.5%, according to filings.

The rotation into bonds is a step change for a sector long underweight the asset class by global standards. Norway's $1.4 trillion sovereign wealth fund and the $450 billion California public employees pension fund CalPERS hold about a quarter of assets in fixed income, for instance.

Australian investors have historically preferred stocks to bonds, in part due to dividend friendly tax laws since the 1980s that enhance income from stocks.

The decline in global yields after the 2008 financial crisis also sapped appetite for debt.

Australian government 10-year bond yields had dropped to around 1% in 2020 before the pandemic, from 6% in 2007. They are now above 4%.

"There's a huge market bias in Australia... it's ridiculous for an OECD country," said Amy Xie Patrick, head of income strategies at Pendal Group, which manages pension money.

Jay Sivapalan, head of Australian Fixed Interest at Janus Henderson, which manages money for local pension funds, said their past investments were mostly in private debt markets where yields come with a liquidity premium.

But the spectacular rise in benchmark sovereign yields since late 2020 is luring funds back to public markets, said Sivapalan.

Even funds reluctant to permanently change allocations to debt are trading bonds. Fixed income has been Aware Super's most actively traded asset class over the past few years, says its Head of Investment Strategy Michael Winchester.

The A$160 billion fund has roughly a tenth of its primary vehicle invested in fixed interest, according to its website.

In another sign of the sector's tentative embrace of fixed income, the country's fifth largest fund, the A$100 billion Hostplus, added debt in fiscal 2022 to its primary vehicle for the first time in five years, but the allocation was only 3%.

"Within the last year to 18 months, they've [the sector] been trying to get to some sort of neutral," said Patrick. "They're not necessarily going over their skis on fixed income."

($1 = 1.5584 Australian dollars)

SHANGHAI/SINGAPORE (Reuters) -China cut its one-year benchmark lending rate on Monday as authorities seek to ramp up efforts to stimulate credit demand, but surprised markets by keeping the five-year rate unchanged amid broader concerns about a rapidly weakening currency.

The recovery in the world's second-largest economy has lost steam due to a worsening property slump, weak consumer spending and tumbling credit growth, adding to the case for authorities to release more policy stimulus.

However, downward pressure on the yuan means Beijing has limited room for deeper monetary easing, analysts say, as a further widening of China's yield differentials with other major economies could trigger yuan selloffs and capital flight.

The one-year loan prime rate (LPR) was lowered by 10 basis points to 3.45% from 3.55% previously, while the five-year LPR was left at 4.20%.

In a Reuters poll of 35 market watchers, all participants predicted cuts to both rates. The 10 bp cut in the one-year rate was smaller than the 15 bp cut expected by most poll respondents.

"Probably China limited the size and scope of rate cuts because they are concerned about downward pressure on the yuan," said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui (NYSE:SMFG) DS Asset Management.

"Chinese authorities care about currency market stability."

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. China cut both LPRs in June to boost the economy.

The onshore yuan eased in early trade to 7.3078 per dollar, compared with the previous close of 7.2855, while benchmark Shanghai Composite index and the blue-chip CSI 300 index also declined.

The yuan has lost nearly 6% against the dollar so far this year to become one of the worst performing Asian currencies.

The reduction in the one-year LPR came after the People's Bank of China (PBOC) unexpectedly lowered its medium-term policy rate last week.

The medium-term lending facility (MLF) rate serves as a guide to the LPR and is widely read by markets as a precursor to future changes to the lending benchmarks.

China's central bank has also pledged to keep liquidity reasonably ample and its policy "precise and forceful" to support the economic recovery, amid rising headwinds, according to its second-quarter monetary policy implementation report.

But the steady five-year tenor caught many traders and analysts off the guard, with some expecting the troubled property sector and rising default risks at some developers would have led to deeper cuts to the benchmarks.

"We interpret the status quo of five-year LPR was a signal that the Chinese banks are reluctant to cut rates at the expense of rate differential margin," said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

"It flagged a problem on the effectiveness of PBOC's policy guidance pass-through into the market, and the Chinese authorities may be lacking effective tools to stimulate the property sector and economy via monetary easing."

Cheung added that the unexpected rate outcome should be "negative to China growth outlook and the yuan exchange rate".

The central bank said it will optimise credit policies for the property sector, while co-ordinating financial support to resolve local government debt problems, it said in a statement on Sunday.

By Jonathan Allen and Brendan O'Brien

KIHEI, Hawaii (Reuters) - U.S. Federal Emergency Management Agency Director Deanne Criswell said on Sunday that President Joe Biden will reassure the people of Lahaina that they will be in control of how they rebuild when he visits the razed Maui community on Monday.

The president along with the first lady plan to visit the historic Hawaiian town and meet with first responders, local officials and victims and get a firsthand look at the widespread devastation, Criswell said on CNN's "State Of The Union" show.

"He's going to be able to reassure the people of Maui that the federal government is there to support them, but we're doing it in a way that's going to allow them to rebuild the way they want to rebuild," she said.

The wildfires incinerated the town of Lahaina on Aug. 8, destroying 2,200 homes and businesses and leaving hundreds unaccounted for. As of Sunday morning, 114 people were confirmed dead.

In a separate interview on ABC's "This Week" program on Sunday, Criswell said search efforts in Lahaina town are 78% complete and that victims have received more than $8 million in federal assistance.

Biden has faced criticism from Republicans for not speaking publicly about the tragedy until five days after it occurred. Criswell said she was in communication in the days that followed the wildfires, helping Biden understand the magnitude of the situation and what resources were needed.

"He directed me to make sure that we are doing everything we can to help the people of Maui and to bring in all of the federal resources to help with this immediate response," she said.

The cause of the fires has not yet been determined pending the results of an official investigation.

In other developments:

- Details have begun to emerge about the lives of the deceased. Forensic pathologists, X-ray technicians, fingerprint experts and forensic dentists are working 12 hours a day to complete the grim task of identifying those lost.

- Getting kids back to school poses challenges as hundreds have already enrolled in schools in areas outside the burn zone. Some will be too traumatized to attend when their schools in Lahaina reopen while some parents will opt to move rather than rebuild.

Wherever they attend, school can be a step toward normalcy for survivors in a community grappling with how to pick up lives while carrying the burden of mourning.

- Biden on Friday authorized additional federal support for Hawaii, the White House said.

Investing.com -- Federal Reserve officials gather for the central bank’s annual get-together at Jackson Hole, Wyoming with a speech by Federal Reserve Chairman Jerome Powell the main highlight. The deepening crisis in China’s property sector will remain to the fore, while PMI data out of the Eurozone and the UK will likely add to the gloom. Here’s what you need to know to start your week.

Jackson Hole

Investors will be looking to a speech by Fed Chair Jerome Powell for clarity on the economic outlook and the future path of interest rates.

Powell’s speech, set for 10:05 am ET on Friday, comes after last week’s minutes of the central bank’s July meeting showed that most policymakers are still concerned about upside risks to inflation, indicating that further rate hikes cannot be ruled out.

Investors will be focusing on whether the Fed head believes more policy tightening will be needed to bring down inflation, or if enough progress has been made to keep rates on hold. Market watchers will also be on the lookout for any clues on whether the Fed is weighing the prospect of rate cuts in 2024.

Traders see an 89% chance of the Fed holding rates at current levels at its September meeting, according to Investing.com's fed rate monitor tool.

Equity markets

With no major catalysts driving markets, investors will be focusing on Powell's speech on Friday for clues on the interest rate outlook as well as earnings from chip designer Nvidia (NASDAQ:NVDA), which is due to report on Wednesday.

Nvidia has had a stunning rally on expected growth in artificial intelligence, nearly tripling in value year-to-date.

Wall Street’s three main indices ended lower last week after a spate of strong economic data caused investors to dial back expectations of rate cuts and drove up government bond yields.

Anxiety over China’s worsening property crisis and its impact on the country’s weakening economy also weighed on market sentiment after embattled developer China Evergrande Group (HK:3333) filed for U.S. bankruptcy protection on Thursday.

China woes

Expectations are mounting that China could make a cut to the loan prime rate - meaning lower mortgage rates - as soon as Monday, amid fears that the unprecedented debt crisis in the country's property sector, which accounts for roughly a quarter of the economy, is starting to spill over into its financial system.

China unexpectedly lowered several key interest rates last week, but analysts say moves so far have been too little, too late, with much more forceful measures needed to stem the economy's downward spiral.

The deepening crisis in the property sector along with worries about contagion risks could have a destabilizing impact on the world’s second largest economy, which has already weakened amid tepid domestic and foreign demand, faltering factory activity and rising unemployment.

PMI data

The Eurozone and the UK are to release PMI data on Wednesday, which could provide insights into whether the European Central Bank will hike interest rates again in September and if the Bank of England opts for a big rate increase.

Eurozone and UK PMIs have been sliding in recent months, amid stagnation in the service sector coupled with a contraction in the manufacturing activity.

ECB President Christine Lagarde is to speak at Jackson Hole on Friday with investors looking for clues on the central bank’s next move in September.

In July, Lagarde said the ECB would keep an "open mind" when it came to future rate decisions, adding that policymakers were "moving to a stage where we are going to be data dependent".

Oil prices

Oil prices posted their first weekly loss since June last week as growing concerns over the global demand outlook offset expectations of tightening supply on the back of output cuts by OPEC+ linchpins Saudi Arabia and Russia.

Oil prices were pressured lower as the worsening property crisis in China weighed on risk appetite. Meanwhile, Wednesday’s Fed minutes boosted Treasury yields and propelled the dollar to a fifth week of gains, weighing on the allure of commodities for overseas buyers.

"Concerns for investors remain focused on the tension between slowing global growth and still-tight global supplies," Rob Haworth, senior portfolio manager at U.S. Bank Asset Management told Reuters.

"Prices are likely to remain range-bound for now," Haworth added, noting that demand is in question for investors worried by the weak data from China.

--Reuters contributed to this report

By Anna-Catherine Brigida

BUENOS AIRES (Reuters) - When Ernesto Acuna, a convenience store owner in Buenos Aires, received the new price list this week from his supplier of the snacks, condiments, sodas and ice creams he sells, he was shocked to find costs on some had risen 60% since late July.

The price list, updated after a primary election shock led to a sharp devaluation of the peso and interest rate hike on Monday, underscores the scale of Argentina's challenge to avoid inflation, already at 113%, climbing faster.

"An ice cream for someone who comes to the store that was 1,000 pesos before, today is 2,000," said Acuna, citing an increase of 35% and then 50% two weeks later. He added that owners like him of 'kiosko' mini-stores didn't know how to respond.

"We kiosko owners don't know if we should increase prices each day, or by how much."

The price lists from a major national supplier, analyzed by Reuters, showed an average hike of 18% between July 26 and Aug. 15. Many were grouped around 25%, while some prices were left unchanged. Ice creams and desserts saw the steepest jumps, although there was variance among different products.

The analysis suggests that wholesalers are rapidly moving to raise prices after market volatility this week, which will feed into higher inflation in August as the country battles to avoid the hyperinflation it suffered in the late 1980s.

The price list offers a window into how these market shocks are passed on to small business owners, and eventually customers. Acuna said products that are imported, face scarcities, or are seasonal see the highest increases.

Businesses selling everything from cleaning products to car parts have rushed to adapt to the higher wholesale prices this week, suspending special offers and sometimes sales altogether.

Juan Pablo Spagnolo, 46, another convenience store owner, said after initial increases of 40%-50% on Monday and Tuesday compared to the previous month, by Wednesday he had received lists with more "reasonable" increases, ranging from 15% to 25%.

"I'm telling you the reality of today, but the reality of next Monday is completely different," Spagnolo said.

Even business owners with decades of experience, such as Acuna, are struggling to adapt to the triple-digit inflation, which analysts forecast will rise further in the lead-up to the Oct. 22 general election, where radical libertarian economist Javier Milei has taken pole position.

Since March, business owners have received updated price lists from their suppliers twice a month, double the frequency of a year ago, said Acuna. Any drastic news, such as Monday's devaluation, can lead to an additional list, he said. The price hikes are much steeper than past years, at least 10% per month, but with some products seeing much higher rises.

Owners then decide how to pass these price hikes on to customers, treading a fine line between maintaining profitability and ensuring a steady clientele, according to Acuna. Some implement the price hikes gradually so as not to scare away customers. Others decide to accept losses on some products in favor of keeping loyal customers.

"You keep trying to buy cheaper, look for a good price, run promotions," Acuna said. "You keep trying to keep people coming to your kiosko, to choose you. There's no other option."

Maria Leguizamon, a 48-year-old apartment manager and frequent customer at Acuna's store, said she will have to trim spending after this week's price increases – buying less meat and fewer treats.

"Prices have gone through the roof, in every way," Leguizamon said, adding that she didn't blame the store owners and small businesses who were just trying to survive. "It's madness what we're living through."

By Kevin Buckland

TOKYO (Reuters) - The dollar headed for a fifth winning week versus major peers, the longest streak for 15 months, as a resilient U.S. economy argued for high rates for longer while China's floundering recovery spurred demand for the safety of the U.S. currency.

On Friday, however, the dollar trimmed some of those gains as its rally against the yen kept traders on edge against the risk of intervention, and the yuan edged up after the People's Bank of China set a much-stronger-than-expected daily fixing.

The U.S. dollar index - which measures the currency against six developed-market rivals, including the yen and euro - eased 0.14% to 103.26 in the Asian morning, after touching a two-month high at 103.59 overnight.

For the week, it is set to gain 0.39%.

On Thursday, minutes from the Federal Reserve's last meeting showed most members of the rate-setting committee continued to see "significant upside risks to inflation," suggesting a bias toward further rate increases.

Strong economic data this week, particularly retail sales, had already bolstered the case for additional tightening.

That all helped push 10-year Treasury yields to the highest since October at 4.328% on Thursday.

"The market wants the Fed to go on hold, but the data just isn't supporting that," said Tony Sycamore, a markets analyst at IG.

"The risk aversion, the higher yields, the resilient economic data ... all of those things have played out to perfection for the U.S. dollar."

Some selling to lock in profit from the dollar's rally makes sense into the weekend, Sycamore added, but a break above 103.70 next week looks likely, opening the way for tests of the May peak at 104.70, and then 105.88.

Against the yen, the dollar eased 0.22% to 145.515 on Friday, after reaching a nine-month peak of 146.40 overnight.

In autumn of last year, the dollar's surge beyond 145 triggered the first yen buying intervention from Japanese authorities in a generation.

The euro rose 0.2% to $1.0892, rebounding from Thursday's six-week low of $1.08565.

Against the yuan, the dollar edged 0.11% lower to 7.2895 in offshore trading, with the Chinese currency garnering support from the central bank's setting of the official mid-point at 7.2006, more than 1,000 pips stronger than Reuters estimate.

The Chinese currency plumbed a nine-month trough of 7.3490 on Thursday in offshore markets.

China's economic troubles have deepened, with property developer China Evergrande (HK:3333) seeking Chapter 15 protection in a U.S. bankruptcy court.

Beijing has so far disappointed with stimulus, even as each recent data release has painted an increasingly grim picture of the economic outlook.

The Australian dollar, which often trades as a proxy for China and has tended to track the yuan in recent days, rose 0.25% to $0.6418, continuing its rebound from Thursday's nine-month low of $0.6365.

Meanwhile, the world's biggest cryptocurrency, bitcoin, languished near a two-month low following a more than 8.5% plunge to a low of $26,266 on Thursday. It last stood at $26,609.

"There comes a point when it just couldn't ignore the rise in (U.S. Treasury) yields any longer," said IG's Sycamore, who sees the potential for a decline to $24,500.

"The question becomes whether you want your assets in a speculative section of the market when you're in the middle of a bond market rout."

By Stella Qiu

SYDNEY (Reuters) - Asian markets were trying to find a firmer footing on Friday after a rough week, hammered by concerns about China's ailing economy and fears of U.S. rates staying higher for longer as long-term bond yields surged.

MSCI's broadest index of Asia-Pacific shares outside Japan were up 0.1% after hitting a nine-month low the session before. It was, however, headed for a weekly loss of 2.8%, the third straight week of declines.

Japan's Nikkei lost 0.4% and was down 3% on the week.

Data early on Friday showed Japan's core inflation slowed in July, a result that is likely to support market wagers that the Bank of Japan is in no hurry to phase out monetary easing anytime soon.

China's blue-chips rebounded 0.2%, while the Hong Kong's Hang Seng Index fell 0.3%. Chinese property giants gained 0.3%, pulling away from a nine-month low hit just a session ago.

Adding to concerns of a deepening crisis in China's property sector, China Evergrande, one of the country's biggest real estate developers, on Thursday filed for protection from creditors in a U.S. bankruptcy court.

China stocks have shed 10% from their highs in January, as dismal economic data laid bare the stuttering post-pandemic recovery, with investors remaining unimpressed with just piecemeal support measures from policymakers.

"At the start of the year China's economy was powering ahead. But the picture has gradually worsened since, and now looks quite bleak," said Jonas Goltermann, deputy chief markets economist at Capital Economics.

"While it's hard to see a catalyst for a lasting turnaround in China's equity market, a lot of bad news is already discounted in it...Our central scenario remains that they make little-to-no gains rather than crashing."

Elsewhere, Treasuries rallied a little after being heavily sold off for the past five weeks. Ten-year yields eased 5 basis points to 4.2564% in Asia, after touching a 10-month top of 4.3280% on Thursday.

30-year yields also fell 4 basis points to 4.3684% and off from a 12-year high of 4.426% hit overnight.

A strong run of U.S. economic data, including a fall in weekly jobless claims on Thursday, suggested the world's largest economy is not slowing as desired in the face of high borrowing costs, prompting traders to scale back rate cuts bets next year.

"The market has downsized the extent of future cuts as the economy is just not lying down," Padhraic Garvey, regional head of research, Americas, at ING. "Confidence may be down, but the U.S. economy continues to spend and make things practically as normal."

"Importantly, upward pressure on market rates has been in longer tenors, not shorter ones. The shorter tenors are standing pat as the Fed is likely done, and that is coming from the significant easing in inflation data."

The Atlanta Federal Reserve's GDPNow forecast model suggested the U.S. economy is likely to grow at a 5.8% annualised rate in the third quarter, up from previous forecast of 5%.

In currency markets, the dollar lost some of its shine on Friday, but still managed to hold recent gains after hitting a six-week top.

The Japanese yen regained posture, up 0.3% to 145.35 per dollar, having been hammered this week to a nine-month low of 146.56 per dollar as yield differentials between U.S. and Japan widened.

It, however, still neared levels that sparked an intervention by Japanese authorities late last year.

The euro wallowed near its five-week low at $1.0876, down 0.6% for the week, while the risk sensitive Australian dollar broke a key support level overnight and was last at $0.6417.

Elsewhere, oil prices were marginally higher. Brent crude futures rose 0.1% at $84.24 per barrel and U.S. West Texas Intermediate crude futures also increased 0.3% to $80.64.

The gold price was slightly higher at $1,893.6 per ounce.