US STOCKS-Strong jobs report puts Wall St on track for 2nd losing week

* May payrolls increase by 280,000 vs est 225,000

* Wall St banks say September rate hike looks more likely

* Indexes: Dow down 0.2 pct, S&P down 0.02 pct, Nasdaq up 0.3 pct (Updates to late afternoon)

By Caroline Valetkevitch

June 5 (Reuters) - The S&P 500 was trading near flat late Friday afternoon as optimism over further signs of recovery in the U.S. labor market was offset by increasing views the Federal Reserve could raise rates as early as September.

Stronger-than-expected jobs data for May and a pickup in wages were the latest signs of better momentum in the economy.

Following the report, Wall Street's top banks said they expect the Fed to begin raising interest rates in September, followed by another increase before the end of the year, according to a Reuters poll.

The S&P utilities index, which tends to fall when bond yields rise, was down 1.4 percent and among the weakest-performing sectors. The U.S. benchmark bond yield jumped to its highest since October.

S&P financials, which benefit from higher rates, were up 0.6 percent, among the day's best performing sectors.

"This certainly puts more ammunition in the Fed's plan to start lift-off in September," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

"It makes sense that the market would fall off on that, but this is good news."

At 3:08 p.m., the Dow Jones industrial average fell 42.11 points, or 0.24 percent, to 17,863.47, the S&P 500 lost 0.35 points, or 0.02 percent, to 2,095.49 and the Nasdaq Composite added 14.64 points, or 0.29 percent, to 5,073.77.

The S&P 500 was on track for a second week of losses.

The Fed has kept overnight rates near zero since December 2008 and the economy's sluggishness had raised doubts whether the Fed would be able to raise rates this year.

Cheap credit has helped bolster the U.S. stock market.

Miners and other commodity-related shares fell along with gold and metals prices. Shares (Berlin: DI6.BE - news) of Newmont Mining (Swiss: NEM.SW - news) were down 3.2 percent at $25.95.

Zumiez (NasdaqGS: ZUMZ - news) dropped 19.8 percent to $23.86 as it estimated current-quarter profit and revenue below analysts' expectations.

Declining issues outnumbered advancing ones on the NYSE by 1,654 to 1,377, for a 1.20-to-1 ratio on the downside; on the Nasdaq, 1,715 issues rose and 1,024 fell for a 1.67-to-1 ratio favoring advancers.

The S&P 500 was posting 16 new 52-week highs and 6 new lows; the Nasdaq Composite was recording 104 new highs and 41 new lows. (Additional reporting by Tanya Agrawa; Editing by Saumyadeb Chakrabarty and Nick Zieminski)