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NEW YORK (Reuters) - Wall Street stocks rose in volatile trading on Friday, while the dollar rallied and Treasury debt prices fell after strong U.S. job market data showed the world's largest economy on a solid footing.
U.S. jobs growth was better than expected in June and the two previous months of gains were revised higher. U.S. bond yields are up sharply, hitting levels not seen since August 2011, as this report increases the likelihood that the U.S. Federal Reserve will begin cutting its massive monetary stimulus, known as quantitative easing, as early as September.
"The sentiment was already positive heading into this report. I think the markets were braced for an upside surprise, and I think this exceeded even that optimism," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
Non-farm payrolls increased by 195,000 in June and the unemployment rate held steady at 7.6 percent as more people entered the workforce. Prominent economists at Goldman Sachs and JPMorgan revised previously held views on the Fed, as they now believe bond-buying will be reduced beginning in September.
The Dow Jones industrial average .DJI rose 82.56 points or 0.55 percent, to 15,071.11, the S&P 500 .SPX gained 9.72 points or 0.6 percent, to 1,625.13 and the Nasdaq Composite .IXIC added 23.05 points or 0.67 percent, to 3,466.72.
The strong data increased expectations of a Fed move to adjust the pace of bond purchases that has helped support the economy, sending benchmark U.S. 10-year Treasury yields to a high of 2.719 percent, the highest in almost two years.
The five- and seven-year yields were also at highs not seen in nearly two years.
The strong jobs data also made clear that Federal Reserve policy may soon start to vary from other large central banks, favoring the U.S. currency.
The U.S. dollar hit a five-week high versus the yen and a six-week peak against the euro. The dollar index .DXY hit its highest in three years.
Equity futures initially got support from comments from central banks in Britain and the euro zone on Thursday signaling that, unlike the United States, they are in no hurry to unwind stimulus. European shares, which had their best day in 11 months on Thursday, fell broadly on Friday.
The FTSEurofirst 300 index .FTEU3 unofficially closed down 1.2 percent after it gained 2.4 percent on Thursday. MSCI's global share index .MIWD00000PUS was down 0.2 percent.
U.S. markets were closed on Thursday for the Independence Day holiday.
"The data is strong enough that it validates the ECB's (European Central Bank) and BOE's (Bank of England) attempts to try to distinguish their policy actions from those in the U.S.," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.
The euro was down 0.6 percent against the dollar at $1.2831 after hitting $1.2805, its lowest since May 20. Against the yen, the dollar touched a peak of 101.13 yen, its highest since May 31. It was last at 100.92, up 0.9 percent.
The firmer dollar weighed on some dollar-priced commodities and spot gold tumbled 2.8 percent to $1,214.36 an ounce. Copper was down 2.5 percent at $6,778 a ton.
Brent crude, however, rose 1.7 percent to $107.28 a barrel after Egypt's army said it was on high alert after an attack in Sinai, though ports and shipping through the Suez Canal have been operating normally.
WTI crude prices rose 1.4 percent to $102.70 per barrel.
Additional reporting by Ryan Vlastelica, Karen Brettell, Luciana Lopez and Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama