GLOBAL MARKETS-Dollar at three-week high, bonds and stocks sell off on hawkish Fed

* European shares in the red, Wall Street seen unchanged

* Fed hike bets for Sept rise after Yellen speech

* Dollar rallies, weighs on oil and gold

By Anirban Nag

LONDON, Aug 29 (Reuters) - The dollar rose to a three-week high against the yen on Monday, while bond yields surged to their highest since June and stocks sold off after senior Federal Reserve officials indicated a U.S (Other OTC: UBGXF - news) . interest rate increase was on the cards soon.

In the past few months, the Fed has been swaying back and forth on whether to raise rates this year, keeping investors across the globe on tenterhooks. But on Friday, at an annual gathering of global central bankers in Jackson Hole, Wyoming, Fed Chair Janet Yellen gave one of the clearest indications that a rate hike was probably round the corner.

She (Munich: SOQ.MU - news) said the case for an interest rate hike has strengthened in recent months as the U.S. labour market and economy improved. That echoed what other senior Fed officials had been saying in the run-up to the Jackson Hole symposium.

And while she gave no hints on the timing of a hike, Fed Vice Chair Stanley Fischer said Yellen's speech was consistent with expectations for possible rate increases this year. Fischer said Friday's nonfarm payrolls report for August was likely to be key to the decision over a hike in the near term.

"Fischer confirmed the broad view on the Fed Open Market Committee that the economy has strengthened of late and that interest rates should be raised gradually; possibly again next month if this week's employment report supports a rate rise," said Stewart Richardson, chief investment officer at RMG Wealth Management.

The odds of a hike in September rose to 33 percent following the comments, from 21 percent on Thursday, according to CME Group's FedWatch tool.

The prospects of higher U.S. interest rates saw European shares lose ground. Germany's DAX was 0.7 percent lower, while the blue-chip Euro Stoxx 50 was down 0.4 percent. British markets are closed for a holiday.

And after closing lower on Friday, Wall Street stock futures pointed to a flat start on Monday.

YIELDS JUMP

Earlier, Japan's Nikkei bucked the trend in Asia, closing 2.3 percent higher, the biggest one-day gain in three weeks, as the yen weakened against the resurgent dollar.

The dollar rose 0.5 percent to a three-week high of 102.39 yen. That followed gains of 1.3 percent on Friday, its biggest one-day advance in almost seven weeks. The dollar index was up at 95.769 its highest in two weeks.

Treasury yields rose to their highest since June, dragging German Bund yields higher.

The yield on Germany's benchmark 10-year bond briefly rose more than 6 basis points to minus 0.025 percent -- the highest level since June 24, when the result of Britain's EU referendum sent shockwaves through markets.

"We're still cautious about the scope for a September rate hike, but it is increasingly becoming a close call," said Martin van Vliet, senior rates strategist at ING.

Investors will turn their focus to a slew of U.S. data this week before the all-important jobs report on Friday. Among the releases to be scrutinized will be U.S. consumer confidence for August, due on Tuesday, while productivity, manufacturing and construction figures are due on Thursday.

Global factory activity surveys will also be released on Thursday.

In commodities, crude prices fell on the back of a rally in the dollar and concerns about growing output after exports from Iraq in August exceeded July levels.

Iran also said late last week that it would only cooperate in upcoming producer talks in September if other exporters recognised Tehran's right to regain market share lost during international sanctions that were lifted in January.

U.S. crude futures dropped 1.5 percent to $46.94 while Brent crude fell 1.4 percent to $49.21.

The stronger dollar weighed on gold. Spot gold slipped 0.1 percent to $1,319.06 an ounce after earlier touching a five-week low. (Additional reporting by Dhara Ranasinghe; Editing by Catherine Evans)