U.S. jobs data lifts dollar, yields; Wall St. steady

By Herbert Lash

NEW YORK (Reuters) - Expectations of more Greek debt drama drove European stocks lower on Friday as German Bunds posted their worst weekly losses since the euro's inception in 1999, while a sharp pick-up in U.S. jobs growth led the dollar to a 13-year high against the yen.

While uncertainty over Greece weighed on sentiment in Europe, a surprisingly strong U.S. labor market report for May pared equity losses in Europe and lifted Treasury yields. Wall Street opened lower but cut its losses after two hours of trading.

Nonfarm payrolls increased 280,000 last month, the largest gain since December, while payrolls for March and April were revised to show 32,000 more jobs were created than previously reported, the Labor Department said.

A gain in average hourly earnings and the surge in jobs growth raised the chances the Federal Reserve would tighten monetary policy this year. Traders are now betting the Fed will start raising interest rates as soon as October.

"Clearly jobs are being created at a very robust rate, and there's a rise in hourly pay. There is some sort of wind gathering there," said Wilmer Stith, a fixed income portfolio manager at Wilmington Trust in Baltimore.

U.S. benchmark Treasury debt yields jumped to their highest since October, with yields on two-year notes hitting a more than four-year peak and five-year yields touched a six-month high.

The benchmark 10-year U.S. Treasury note fell 21/32 in price to yield 2.3842 percent. Earlier they touched an eight-month peak of 2.442 percent.

German 10-year yields , the benchmark for euro zone borrowing costs, were higher at 0.85 percent. The widely watched 10-year shed almost 3 percent of its value this week, the biggest weekly loss since the euro's entry in 1999.

MSCI's all-country world stock index fell 0.78 percent, while the pan-European FTSEurofirst 300 index fell 0.79 percent to 1,544.98.

On Wall Street, stocks hovered near break-even. The Dow Jones industrial average fell 6.84 points, or 0.04 percent, to 17,898.74, the S&P 500 rose 0.58 points, or 0.03 percent, to 2,096.42 and the Nasdaq Composite added 3.82 points, or 0.08 percent, to 5,062.94.

The dollar rallied to a 13-year peak against the yen and rose sharply against the euro on the accelerating U.S. job growth.

The dollar rose more than 1 percent against the euro, yen, and Swiss franc. The greenback hit 125.740 yen, while the euro turned sharply lower after rallying earlier this week.

The euro was last down 1.14 percent against the dollar at $1.1109 . The dollar was last up 1.05 percent against the yen at 125.66 yen.

Greece delayed repayment of an IMF loan on Friday and a deputy minister said Athens might call snap elections to break an impasse with lenders.

Oil traded near break-even in volatile trade, with Brent briefly hitting seven-week lows before paring losses. The surging dollar and an OPEC decision not to cut output in an oversupplied market sent crude prices on a roller-coaster ride.Brent was up 28 cents at $62.31 a barrel, after tumbling to an April 16 low of $60.94 a barrel. U.S. crude was down 12 cents at $57.88 a barrel.

(Reporting by Herbert Lash; Editing by Nick Zieminski)