(Updates with close of U.S. markets)
* Sterling dives 10 percent, recoups most losses
* U.S. jobs growth slows, jobless rate rises
* Wall Street falls, Europe's STOXX index lower
* Traders still betting on year-end Fed rate hike
* Oil down after profit taking from strong week
By Lewis Krauskopf
NEW YORK, Oct 7 (Reuters) - Sterling weakened again on Friday after rebounding from a stunning plunge that injected volatility across markets, while Wall Street ended lower after a weaker-than-expected U.S. jobs report which left intact expectations for a U.S. interest rate hike by year-end.
Sterling plummeted nearly 10 percent to a 31-year low in earlier trading in what traders called a "flash crash".
The Bank of England was investigating the cause of the sudden price move, but the currency had already been on track for one of its worst weeks in seven years as some national leaders called for Britain to make a "hard" exit from the European Union.
Sterling was last down 1.4 percent against the dollar at about $1.2436.
"I think it's a warning shot from the markets to the UK about what type of potential volatility in sterling we may see down the line," said Shahab Jalinoos, global head of FX strategy at Credit Suisse in New York.
After the U.S. jobs report, the dollar slipped 0.3 percent against a basket of currencies after rising to two-month highs. The greenback weakened 0.9 percent against the yen .
Data showed U.S. employment growth unexpectedly slowed for a third month in September and the jobless rate rose. Nonfarm payrolls rose 156,000, less than August's 167,000 gain, the Labor Department said.
After the report, traders were virtually discounting chances that the Federal Reserve would raise rates at its next meeting in November, according to the CME FedWatch website. But they saw a roughly 70 percent chance for a rate hike in December, slightly higher than bets from a day earlier.
Cleveland Fed President Loretta Mester called the job growth "solid" and said she continues to believe it appropriate for the U.S. central bank to raise rates.
Markets have been dominated by central bank policy, including a shift from the Bank of Japan last month, resurgence in talk of the European Central Bank possibly tapering its bond buying program, and the outlook for a Fed rate hike.
Major U.S. equity indexes closed down after the jobs report but came off of session lows.
The Dow Jones industrial average fell 28.01 points, or 0.15 percent, to 18,240.49, the S&P 500 lost 7.03 points, or 0.33 percent, to 2,153.74 and the Nasdaq Composite dropped 14.45 points, or 0.27 percent, to 5,292.41.
"There's a fear in investors that the Fed may be looking at raising rates again into a slowing economy, a replay of last December," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. "It's easier to step to the sidelines and wait to see what happens, if that transpires or not."
Materials and industrials were the worst-performing S&P sectors, pulled down by disappointing financial updates from chemical company PPG Industries and diversified manufacturer Honeywell.
MSCI's gauge of stocks across the globe fell 0.3 percent.
The pan-European STOXX index shed 0.9 percent. Shares of vouchers company Edenred tumbled after a brokerage downgrade on the stock.
But Britain's FTSE 100 index rose 0.6 percent, propped up by the fresh slump in sterling.
U.S. Treasuries ended little changed. Benchmark 10-year notes rose 2/32 in price to yield 1.74 percent. Earlier the yield rose as high as 1.77 percent, the highest in about four months.
Oil futures fell as players took profit following a strong rally this week spurred by hopes of OPEC output cuts.
Benchmark Brent settled down 1.1 percent at $51.93 a barrel, while U.S. crude settled down 1.3 percent at $49.81.
Spot gold was little changed but was on track for its worst week this year. (Additional reporting by Richard Leong, Chuck Mikolajczak, Barani Krishnan and Karen Brettell in New York and Vikram Subhedar in London; Editing by Bernadette Baum and James Dalgleish)