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GLOBAL MARKETS-Dollar, stocks gain after stronger-than-expected U.S. jobs data

* U.S. stocks rise on payrolls; MSCI (NYSE: MSCI - news) global index edges up

* Brent, U.S. oil settle lower; gold slides after jobs data

* U.S. 2-year Treasuries yield hits highest since May 2011 (Updates with crude oil settlements)

By Caroline Valetkevitch

NEW YORK, Dec 5 (Reuters) - An unusually strong U.S. jobs report lifted the dollar to a five-and-a-half-year high against a basket of currencies on Friday and drove stocks higher, led by financial shares.

U.S. bond prices dropped, with the yield on U.S. two-year Treasuries hitting the highest level since May 2011, as investors priced in a U.S. interest rate hike by mid-2015.

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The Labor Department data showed U.S. employers hired more workers in November than during any month in nearly three years. Non-farm payrolls surged by 321,000, the most since January 2012 and topping forecasts for 230,000 new jobs. The unemployment rate held steady at a six-year low of 5.8 percent.

"It is unequivocally bullish on the U.S. economy," said Anthony Valeri, fixed-income strategist at LPL Financial (NasdaqGS: LPLA - news) in San Diego. "We'll need more evidence, but it definitely contradicts the low-yield environment we have been in."

U.S. short-term interest-rate futures contracts dropped as traders bet the Federal Reserve would raise interest rates in July 2015 - earlier than formerly thought.

The jobs report caused the yield on U.S. two-year Treasuries to rise nearly 9 basis points. The yield curve flattened, with the differential between the five-year note and the 30-year bond falling to its lowest level since January 2009.

The benchmark 10-year U.S. Treasury note was down 20/32 in price, with the yield at 2.326 percent.

The dollar rose against a basket of currencies to its highest level since March 2009. The dollar climbed to its highest level against the yen since late July 2007.

On Wall Street, the Dow Jones industrial average rose 51.53 points, or 0.29 percent, to 17,951.63, the S&P 500 gained 2.11 points, or 0.1 percent, to 2,074.03, and the Nasdaq Composite added 8.60 points, or 0.18 percent, to 4,778.04.

Stock traders balanced the encouraging fundamental strength in the U.S. economy with the prospect of a rate rise.

Financial shares led gains, with the S&P financial index up 0.9 percent, with higher interest rates expected to boost earnings in the sector. Utilities, a dividend play, lost ground as Treasuries yields rose. The S&P utility index was down 1.1 percent.

MSCI's global share index was up 0.2 percent, while an index of European shares ended up 1.8 percent as a weaker euro boosted exporters.

The rally in stocks follows heavy declines on Thursday after the European Central Bank said a decision about further stimulus would be made next year.

Gold dropped nearly 1 percent, suffering from the dollar's strength, while Brent and U.S. crude continued their slide.

Spot gold was at $1,191.05 an ounce. Brent crude fell 57 cents to settle at $69.07 a barrel, while U.S. crude oil futures dropped 97 cents to settle at $65.84. (Additional reporting by Michael Connor in New York; Editing by Dan Grebler and Leslie Adler)