Dollar off after data, stocks flat; Greek vote eyed

NEW YORK (Reuters) - The U.S. dollar index fell from a three-week high on Thursday as a weaker than expected U.S. payrolls report lowered chances of a U.S. interest rate hike come September, while Wall Street and world stock markets ended little changed after a volatile week.

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.

Days after Greece defaulted on part of its IMF debt, the Fund said Greece needs an extra 50 billion euros over the next three years, including 36 billion from its European partners, to stay afloat. It also needs significant debt relief.

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.

The Dow Jones industrial average <.DJI> fell 27.8 points, or 0.16 percent, to 17,730.11, the S&P 500 <.SPX> lost 0.64 points, or 0.03 percent, to 2,076.78 and the Nasdaq Composite <.IXIC> dropped 3.91 points, or 0.08 percent, to 5,009.21.

Despite the nearly flat moves on Thursday, the S&P 500 posted its largest weekly loss, 1.2 percent, since the last week of March. U.S. markets will not be open on Friday in observance of the Independence Day holiday.

"Given the referendum on Sunday in Greece and the holiday weekend, at least for today the action was somewhat muted compared to the rest of the week," said Michael Arone, chief investment strategist for State Street Global Advisors' U.S. Intermediary Business.

He said he expects Greeks to accept tough austerity measures with a prevailing "Yes" vote on Sunday and that Greece will eventually come to terms with its creditors with a new bailout package. Volatility will likely remain elevated during that process.

"The real risk is a 'No' vote, then you'll see markets trade down further," he said.

The pan-European FTSEurofirst 300 index <.FTEU3> closed down 0.4 percent and MSCI's gauge of equities globally <.MIWD00000PUS> was flat on the day. U.S.-dollar denominated Nikkei futures were down 0.4 percent.

DATA FOCUS

U.S. Treasuries prices rose on the back of 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 Treasury notes were up 9/32 in price, erasing losses from before the payrolls data. The 10-year yield was last 2.3859 percent, down 3 basis points from late Wednesday.

The euro rose against the dollar after two days of losses, up 0.3 percent at $1.1084. The dollar index <.DXY>, a gauge of the greenback against major currencies, fell 0.2 percent after earlier having risen to its highest in three weeks.

In commodities markets, U.S. crude lost its gains after a surprise rise in the U.S. rig count. U.S. crude fell 0.7 percent to $56.55 a barrel and Brent crude futures slipped 0.3 percent to $61.84 a barrel.[O/R]

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 and Chris Reese)

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