Dollar, stocks climb as U.S. jobs beat forecast

NEW YORK (Reuters) - A surprisingly strong U.S. jobs report lifted the dollar to a five-and-a-half year high against a basket of currencies on Friday, while stocks climbed, led by financial shares.

Investors priced in a U.S. interest rate hike by mid-2015 and U.S. Treasuries prices dropped following the Labor Department data, which showed U.S. employers hired more workers in November than during any month in nearly three years.

Non-farm payrolls surged by 321,000 last month, the most since January of 2012, according to the report. Forecasts were for 230,000 new jobs. The unemployment rate held at a six-year low of 5.8 percent.

"It is unequivocally bullish on the U.S. economy," said Anthony Valeri, fixed-income strategist at LPL Financial in San Diego. "We'll need more evidence but it definitely contradicts the low-yield environment we have been in."

U.S. short-term interest-rate futures contracts dropped as traders bet the Federal Reserve would raise interest rates in July 2015 - earlier than formerly thought. The robust report caused the yield on U.S. 2-year Treasuries to rise nearly 9 basis points to the highest since May 2011, according to Reuters data.

The benchmark 10-year U.S. Treasury note was down 16/32, the yield at 2.3136 percent.

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

On Wall Street, the Dow Jones industrial average <.DJI> was up 60.56 points, or 0.34 percent, at 17,960.66. The Standard & Poor's 500 Index <.SPX> was up 3.75 points, or 0.18 percent, at 2,075.67. The Nasdaq Composite Index <.IXIC> was up 14.99 points, or 0.31 percent, at 4,784.42.

Traders were balancing the encouraging fundamental strength in the U.S. economy with the prospect of a rate rise.

Financial shares led gains, with the S&P financial index <.SPSY> up 1 percent.

MSCI's global share index <.MIWD00000PUS> was flat, while an index of European shares <.FTEU3> was 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.

Gold dropped nearly 1 percent, suffering from dollar strength, while Brent and U.S. crude continued their slide.

Spot gold was at $1,194.90 an ounce. Brent crude was down $1.15 at $68.49 a barrel, while U.S. crude oil futures were down $1.42 at $65.39.

(Additional reporting by Alistair Smout in London and Michael Connor in New York; Editing by Larry King and Dan Grebler)

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