* Wall St slips as data points to higher rates
* Bond yields jump, curve flattens after strong data
* Dollar rises more than 1 pct on payrolls report
* Brent heads for best two weeks since 1998 (Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Feb 6 (Reuters) - The dollar and U.S. government debt yields jumped on Friday as a strong American labor market report raised expectations that the Federal Reserve will increase interest rates by mid-year.
Wall Street initially rose and European equities hit a seven-year high on the Labor Department report that showed solid U.S. job growth, with wages rebounding strongly. More than one million jobs have been created over the past three months, the first time that has happened since late 1997.
But U.S. stocks sold off in the afternoon on renewed jitters over Greece as a deadline looms next week for the newly elected government to secure a bailout extension.
"There's more loggerheads coming out of the Greece negotiations," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. "The negotiations on the Greek debt weighed in on the market this afternoon."
Oil futures bounced up from near-six-year lows, but gold fell more than 2 percent and spot silver slid 3.7 percent. U.S. Treasury yields rose and the yield curve flattened as traders increased bets the Fed will raise rates by mid-year.
The better-than-expected labor report added to expectations the Fed will begin to raise near-zero interest rates around the start of summer and slammed rate-sensitive securities.
Real estate stocks and the utilities sector led the decline as their higher yields lose appeal in a rising rate environment, while financials gained as they stand to see an increase in profits from higher rates.
Utilities fell 4.13 percent, the biggest single-day drop since August 2011, and financials rose 0.73 percent. One of the biggest percentage losers in the S&P 500 was Simon Properties Group, which lost 4.0 percent.
"With the stronger-than-anticipated employment report, there's discussion the Fed might move earlier rather than later," Hellwig said. "We've seen a change in some of the leadership today. We've seen the financial sector do well and the interest-rate sensitive utilities sector do poorly."
The Dow Jones industrial average fell 60.59 points, or 0.34 percent, to 17,824.29. The S&P 500 lost 7.05 points, or 0.34 percent, to 2,055.47 and the Nasdaq Composite shed 20.70 points, or 0.43 percent, to close at 4,744.40.
In Europe, the FTSEurofirst 300 index of top regional shares rose 0.2 percent to close at 1,490.84. But markets in Britain, Germany, France and Italy all fell on mixed earnings reports and worries about Greek debt negotiations, which put an early damper on global equity gauges.
MSCI's all-country world stock index fell 0.48 percent.
Brent crude was on track for its biggest weekly rise since 2011, boosted by fighting in Libya and the strong economic signals from the United States.
Benchmark Brent crude rose $1.23 to settle at $57.80 a barrel. U.S. crude for March delivery settled up $1.21 at $51.69 a barrel.
On the U.S. Treasury market, benchmark 10-year note yields fell 1-9/32 in price to yield 1.9584 percent, while 30-year bond yields rose to 2.5287 percent.
Yields on German bunds and British gilts also rose on the U.S. jobs data.
"By any measure, this was an extremely good report," Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York, said of the January jobs report.
The dollar index was up 1.16 percent at 94.652, while against the yen, the dollar rose 1.26 percent to 118.99.
The euro was down 1.35 percent at $1.1320. (Additional reporting by Chuck Mikolajczak in New Yori, reporting by Herbert Lash; Editing by David Gregorio, Dan Grebler and Bernard Orr)