By Rodrigo Campos
NEW YORK (Reuters) - The U.S. dollar index fell from a three-week high on Thursday as chances of a U.S. interest rate hike as soon as September took a hit following a weaker-than-expected U.S. payrolls report, while Wall Street and world stock markets also ticked down.
Bank shares were hit the most in New York on the expectation of lower rates for longer, while utilities, favored when Treasuries yield relatively low rates, outperformed.
Across the Atlantic, Greece was headed to a referendum on Sunday that could decide its future in the euro zone. The effect on financial markets was viewed as mixed, with some analysts saying it will have little influence, though they acknowledge it is ultimately unknown.
Greek Finance Minister Yanis Varoufakis said on Thursday the only chance of the country getting back on track was immediate debt relief, something the rest of the euro zone was not prepared to offer.
U.S. payrolls increased 223,000 last month, shy of expectations, and 60,000 fewer jobs were created in April and May after revisions. At least 432,000 people dropped out of the labor force.
The Federal Reserve has indicated participation and wage growth are key for its assessment of the health of the labor market. Both were soft in Thursday's report.
"It is a slightly disappointing payroll number. If anything, it buys the Fed a little more time before the first rate hike," said Wilmer Stith, a fixed income portfolio manager at Wilmington Trust in Baltimore.
The Dow Jones industrial average <.DJI> fell 42.73 points, or 0.24 percent, to 17,715.18, the S&P 500 <.SPX> lost 3.48 points, or 0.17 percent, to 2,073.94 and the Nasdaq Composite <.IXIC> dropped 14.65 points, or 0.29 percent, to 4,998.47.
The pan-European FTSEurofirst 300 index <.FTEU3> fell 0.4 percent and MSCI's gauge of equities globally <.MIWD00000PUS> ticked 0.1 percent lower. Chinese shares <.SSEC> also remained in focus as they suffered another heavy tumble overnight to take their loses over the last three weeks to near 25 percent.
Markets were less volatile than in other sessions this week even as the Greek drama remained unsolved. U.S. Markets will close on Friday for the observance of the Independence Day holiday.
"Traders have their eyes on their holiday destinations," said Michael Arone, chief investment strategist for State Street Global Advisors' U.S. Intermediary Business.
He said he expects a 'Yes' vote on Sunday and that Greece will eventually come to terms with its creditors with a new bailout package, and that volatility will remain during that process.
"The real risk is a 'No' vote, then you'll see markets trade down further," he said.
DATA FOCUS
U.S. Treasuries prices rose on the jobs data, with the benchmark Treasury note yield hovering near 2.4 percent.
"The biggest disappointment was in wages. This set back the progress we had been seeing," said Jeffrey Rosenberg, chief investment strategist for fixed income at New York-based BlackRock, about the payrolls report.
Benchmark 10-year Treasuries notes
The euro
In commodities markets, U.S. crude rose slightly, helped by the weaker dollar after falling 4 percent the previous session.
U.S. crude
Traders were keeping a close eye on nuclear talks between Western powers and Iran, looking for any sign of a deal to lift sanctions on the oil-rich nation.
(Additional reporting by Richard Leong, Ryan Vlastelica and Sam Forgione in New York and Karolin Schaps in London; Editing by Meredith Mazzilli)
