* U.S. job growth in May was stronger-than-expected
* Unemployment rate hits 18-yr low
* U.S. Treasury yields at session peaks after data
* S&P technology index hits record high
* Indexes up: Dow 0.96 pct, S&P 1.07 pct, Nasdaq 1.45 pct (Updates to early afternoon)
By Medha Singh
June 1 (Reuters) - U.S. stocks rose on Friday after the latest monthly jobs report pointed to strength in the world's largest economy and cemented expectations of at least two more rate hikes by the Federal Reserve this year.
Technology stocks led the rally, with gains in behemoths such as Apple, Microsoft and Alphabet lifting the S&P tech index to a record high.
Government data showed the U.S. economy added 223,000 jobs in May, while the average hourly earnings rose 0.3 percent after edging up 0.1 percent in April, both topping estimates by economists polled by Reuters.
The data showed a drop in the unemployment rate to an 18-year low of 3.8 percent, indicating a rapidly tightening labor market conditions.
"Today's information shows the economy is starting to hit a very big growth stride. This will translate to wage growth and some level of acceptable inflation that will be monitored and managed through interest rates," said Philip Noftsinger, executive vice president of CBIZ Employee Benefits in Roanoke, Virginia.
"The market sees the information as the power of the economy that almost trumps rising interest rates."
Bets by traders in short-term interest-rate futures showed that the Federal Reserve is increasingly likely to raise rates a fourth time this year.
The benchmark U.S. Treasury yield climbed to the session peaks of 2.926 percent. U.S. two-year yield also touched the day's peak of 2.488 percent.
Prospects of interest rate hikes lifted the S&P financial index by 1.3 percent, with shares of big U.S. banks gaining between 1.2 percent and 2.2 percent.
Markets got a reprieve overnight as Italy's anti-establishment parties revived coalition plans, removing the risk of a repeat vote dominated by debate over the country's future in the euro zone.
However, investors are keeping an eye out on developments around trade after Washington imposed steel and aluminum tariffs on imports from Canada, Mexico and the European Union.
Canada and Mexico retaliated, targeting U.S. products such as whiskey, orange juice, steel, aluminum and others.
At 12:45 p.m. ET, the Dow Jones Industrial Average was up 233.64 points, or 0.96 percent, at 24,649.48, the S&P 500 was up 28.94 points, or 1.07 percent, at 2,734.21 and the Nasdaq Composite was up 107.58 points, or 1.45 percent, at 7,549.69.
The Nasdaq was only a percent away from record high, powered by a tech rally that largely cushioned the index in the past week even as the broader markets suffered.
"Tech isn't in the headlines as groups that are going to be impacted by what's going on with regards to tariffs in the EU, whereas others are," said Daniel Morgan, portfolio manager at Synovus Trust in Atlanta which holds shares in the so-called FAANG stocks.
"That's another reason on top of the strong earnings growth in the sector."
Advancing issues outnumbered decliners by a 2.29-to-1 ratio on the NYSE. Advancing issues outnumbered decliners by a 2.22-to-1 ratio on the Nasdaq.
The S&P index recorded 22 new 52-week highs and six new lows, while the Nasdaq recorded 141 new highs and 25 new lows. (Reporting by Medha Singh in Bengaluru; Editing by Arun Koyyur)