FOREX-Dollar surrenders gains sparked by strong U.S. jobs report

* Dollar ends mostly flat after payrolls-related spike

* U.S. jobs gains of 288,000 smartly top forecasts

* Jobs gains offset by flat wages, other data shortfalls

(Adds dollar's fizzle, comments and latest prices)

By Michael Connor

NEW YORK (Frankfurt: HX6.F - news) , May 2 (Reuters) - Currency traders briefly boosted

the dollar on Friday on news of surprisingly strong hiring that

took the U.S. unemployment rate in April to a 5-1/2-year low

before surrendering the gains on data signalling many Americans

were exiting the labor force.

The dollar index, a composite of six currency pairs,

was down 0.01 percent in late New York trade after rising about

0.40 percent on U.S. labor reports showing a big drop in the

jobless rate.

The dollar rose sharply against the yen after the jobs data

to as high as 103.02 yen but dropped back to a nearly flat

102.23 yen late on Friday.

The euro was initially down 0.38 percent or more

against the dollar but was up a touch in late trading at

$1.3874.

April's U.S. jobless rate was 6.3 percent, down 0.4 of a

percentage point, and the lowest since September 2008.

But the monthly jobs reports also showed a drop in the labor

participation rate, a reflection of increasing numbers of

Americans ending job hunting, and flat wage increases.

"Initially, it looked to people that the Federal Reserve

might speed up the normalization of interest rates but as they

looked at details (of the labor reports) they changed their

minds," said Joseph Trevisani, chief market strategist at

WorldWideMarkets Online in Woodcliff Lake, New Jersey.

The dollar will face headwinds in currency markets until the

Fed clearly adopts a program of raising rates, Trevisani said.

The U.S. government data, including a nonfarm payrolls surge

of 288,000 far above Wall Street forecasts of 210,000, bolstered

optimism about the U.S. economy for many.

"This keeps the Fed on track for tapering and for the first

interest rate hikes in 2015," said Anthony Valeri, investment

strategist at LPL Financial (NasdaqGS: LPLA - news) in San Diego.

(Editing by Nick Zieminski and James Dalgleish)