Dollar, stocks rise 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.

U.S. bond prices dropped, with the yield on U.S. 2-year Treasuries hitting the highest since May 2011, as investors priced in a U.S. interest rate hike by mid-2015.

The Labor Department data 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 and above forecasts 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 U.S. report caused the yield on U.S. 2-year Treasuries to rise nearly 9 basis points. The yield curve also flattened, with the differential between the five-year note and the 30-year bond falling to its lowest since January 2009.

The benchmark 10-year U.S. Treasury note as down 20/32, the yield at 2.326 percent.

The dollar rose against a basket of currencies <.DXY> to its highest 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> rose 87.11 points, or 0.49 percent, at 17,987.21. The Standard & Poor's 500 Index <.SPX> was up 7.10 points, or 0.34 percent, at 2,079.02. The Nasdaq Composite Index <.IXIC> was up 19.25 points, or 0.40 percent, at 4,788.69.

Stock 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 1.2 percent as higher interest rates are expected to boost earnings in the sector. Utilities, a dividend play, lost ground as Treasuries yields rose. The S&P utility index <.SPLRCU> was down 1.1 percent.

MSCI's global share index <.MIWD00000PUS> was up 0.2 percent, while an index of European shares <.FTEU3> ended up 1.8 percent as a weaker euro boosted 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 the dollar's strength, while Brent and U.S. crude continued their slide.

Spot gold was at $1,191.05 an ounce. Brent crude was down 35 cents at $69.29 barrel, while U.S. crude oil futures were down 73 cents at $66.08.

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

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