U.S. shares, bond yields, dollar fall after jobs data

NEW YORK (Reuters) - Weaker-than-expected jobs growth in the United States for July weakened the dollar and pushed U.S. Treasury yields and stocks lower on Friday as investors grew more cautious on the outlook for U.S growth and Federal Reserve plans for trimming stimulus.

The number of jobs outside the farming sector increased by 162,000 last month although the unemployment rate fell to 7.4 percent, its lowest in over four years. The result was below the median forecast in a Reuters poll for 184,000 new jobs.

"The report shows that the health of the labor market is improving but at the same time, unhealthy," said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York. "The stock market is a bit schizophrenic here, because while it does keep the Fed more on the sidelines, it's not a good sign of our economy. There is this balancing act here where the market wants growth but not too much too soon."

The Dow Jones industrial average was down 52.36 points, or 0.34 percent, at 15,575.66. The Standard & Poor's 500 Index was down 4.09 points, or 0.24 percent, at 1,702.78. The Nasdaq Composite Index was down 4.73 points, or 0.13 percent, at 3,671.01.

European shares erased gains after the data but then recovered some of the drop with the FTSEurofirst 300 trading up 0.2 percent. Earlier the FTSEurofirst 300 touched a two month high on a rally in insurers after earnings reports from AXA and Allianz.

The MSCI's world equity index was last up 0.4 percent.

The benchmark 10-year U.S. Treasury note, which was in negative territory before the report, was up 25/32 afterwards, its yield easing at 2.6112 percent. German Bund futures rose 0.2 percent to 142.70.

Italian bonds meanwhile braved growing political uncertainty after Italy's top court upheld a jail sentence against former premier Silvio Berlusconi that could throw the country's coalition into crisis.

Italian government bond yields were last at 4.296 percent.

DOLLAR FALLS

The dollar fell against the euro and yen It was last at 98.74 yen, down 0.8 percent, and $1.3286 against the euro zone single currency, a gain of 0.6 percent for the euro.

"The report takes away more than it offers in the sense that it means that the decision to taper QE3 in September has become that much more difficult for the Federal Reserve," said Christopher Vecchio, currency analyst at DailyFX in New York. "As we learned after this Wednesday's FOMC policy meeting, the Fed isn't exactly excited about where the U.S. economy is right now."

Gold rebounded on Friday as the dollar dropped. Spot gold fell as much as 1.9 percent to $1,282.69 an ounce ahead of the data but was last up 0.4 percent to $1,314.14.

U.S. crude oil futures fell 1 percent to $106.77 a barrel but were still heading for 1.9 percent rise on the week.

Brent crude oil reached a four-month peak of $110.09 a barrel and a weekly increase of 1.3 percent after two weeks of losses as the improving economic outlook for the world's biggest consumer adds to concern over supply disruptions in Iraq, Libya and Nigeria.

(Reporting by Nick Olivari; Editing by James Dalgleish)