* Bond yields jump, curve flattens after strong data
* Dollar rises more than 1 pct on payrolls report
* Wall St wavers on concerns about Fed rate hike
* Brent heads for best two weeks since 1998 (Adds oil settlement prices)
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.
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.
But Wall Street’s weak upside response to the data raised some concerns about the U.S. equity market’s strength, and U.S. stocks slipped in the afternoon to break-even or lower.
“The reason the market is being held back is the realization that this puts the Fed in play (to hike rates) for probably June 2015,” said Phil Orlando, chief equity strategist at Federated Investors in New York. “It’s sell-off first, and then a nice back-end rally once everyone understands the economic read through.”
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 3.31 percent and financials rose 1.1 percent. One of the biggest percentage losers in the S&P 500 was Simon Properties Group, which lost 3.8 percent.
Jack Ablin, chief investment officer at BMO Private Bank in Chicago, said he would rather see the economy strong enough to force the Fed to tighten rather than sit on the sidelines.
“For me, it’s really mostly protein versus sugar,” Ablin said. “We can keep eating donuts on easy Fed policy or we can maybe start to digest something more substantial.”
The Dow Jones industrial average was down 39.43 points, or 0.22 percent, at 17,845.45. The Standard & Poor’s 500 Index was down 1.40 points, or 0.07 percent, at 2,061.12. The Nasdaq Composite Index was down 6.99 points, or 0.15 percent, at 4,758.10.
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 a bailout of Greece, putting a damper on global equity gauges.
MSCI’s all-country world stock index fell 0.33 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 traded $1.21 higher at 57.78 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 1-5/32 in price to yield 1.9428 percent, while 30-year bond yields rose to 2.5167 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 1.2 percent at 94.735, while against the yen, the dollar rose 1.44 percent to 119.20.
The euro was down 1.41 percent at $1.1313. (Additional reporting by Chuck Mikolajczak in New Yori, reporting by Herbert Lash; Editing by David Gregorio and Dan Grebler)