Dollar soars, stocks gyrate as U.S. jobs beat forecast

LONDON (Reuters) - A surge in U.S. hiring in November lifted the dollar to a five-and-a-half year high against a basket of currencies on Friday, and stocks bounced as investors priced in a U.S. interest rate hike by mid-2015.

Non-farm payrolls surged by 321,000 last month, the most since January of 2012, the Labor Department said on Friday. Forecasts were for 230,000 new jobs.

U.S. employers added the largest number of workers in nearly three years in November and wages increased. The unemployment rate held at a six-year low of 5.8 percent.

The dollar rose against a basket of currencies to its highest level since March 2009. It also gained against the yen to its highest since late July 2007.

U.S. short-term interest-rate futures contracts dropped as traders bet that the Federal Reserve would raise rates in July 2015 - earlier than formerly thought.

U.S. stock futures were volatile, reversing initial gains before rising again. Traders were balancing the encouraging fundamental strength in the economy with the prospect of a rate rise.

"Even with the rate rises in the U.S. looming, we see the economy starting to get back on track and be able to handle rate rises," said Atif Latif, director of trading at Guardian Stockbrokers.

The pan-European FTSEurofirst 300 <.FTEU> extended gains, up 1.6 percent as the weaker euro lifted exporters.

The rally follows heavy declines on Thursday after the European Central Bank said a decision about further stimulus would be made next year. Bund futures hit new lows for the session.

Gold dropped nearly one percent, suffering from dollar strength, while brent crude edged higher.

(Editing by Larry King)

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