NEW YORK (Reuters) - Stocks overcame early weakness, and the dollar and U.S. Treasury debt yields rallied on Friday, after December's U.S. non-farm payrolls report showed a slowing in hiring but an increase in wages, setting the economy up for further interest rate increases from the Federal Reserve this year.
A stronger dollar weighed on dollar-denominated commodity prices and oil rose slightly on increased buying ahead of the weekend.
U.S. employment increased less than expected in December but a rebound in wages pointed to sustained labour market momentum that sets up the economy for stronger growth and could drive the Fed to consider raising interest rates as early as the first quarter.
"There's still improvement to be made, especially with the labour force participation rate being low, but conditions seem to be close to what the Fed might be happy with," said Brian Jacobsen, chief portfolio strategist, at Wells Fargo Funds Management, in Menomonee Falls, Wisconsin.
MSCI's world index <.MIWD00000PUS>, which tracks shares in 46 countries, erased earlier losses to trade little changed. U.S. stocks advanced and the Dow Jones Industrial Average <.DJI> came within a hair's breadth of hitting 20,000 for the first time ever.
U.S. stocks have risen sharply since Donald Trump won the U.S. election in November and while Friday's additional gains suggested the rally is not yet over, some investors have grown cautious.
"The market's advance is understandable because of the economic stimulus optimism associated with a new Trump presidency," said CFRA chief investment strategist Sam Stovall.
"But parabolic market advances traditionally experience digestion of these gains, and I don't think this time will be any different."
The Dow Jones Industrial Average <.DJI> rose 82.97 points, or 0.42 percent, to 19,982.26, the S&P 500 <.SPX> gained 10.32 points, or 0.454826 percent, to 2,279.32 and the Nasdaq Composite <.IXIC> added 38.58 points, or 0.7 percent, to 5,526.52.
European shares rallied from lows on Friday after the U.S. jobs data. Europe's broad FTSEurofirst 300 index <.FTEU3> pared early losses to finish little changed at 1,444.97.
The solid jobs report helped the dollar recover ground after two straight days of losses against a basket of major currencies. The dollar index <.DXY>, which measures the greenback against six major rivals, was up 0.67 percent to 102.2.
In bond markets, U.S. Treasury debt yields rose across the board. Yields on benchmark U.S. 10-year notes rose from a five-week trough, while those on 30-year bonds recovered from a seven-week low following the jobs data.
"The wage pressure number will give the Fed enough ammunition to consider raising rates again perhaps in the first quarter," said Dan Heckman, senior fixed income strategist, at U.S. Bank Wealth Management in Kansas City, Missouri.
The U.S. 10-year note <US10YT=RR> was down 14/32 in price to yield 2.418 percent, compared with 2.368 percent late on Thursday.
Meanwhile, the stronger dollar weighed on dollar-denominated commodity prices.
Gold slipped from a one-month high touched in the previous session. Spot gold <XAU=> fell 0.74 percent to $1,171.70 an ounce.
Oil prices rose slightly on Friday as investors bought futures ahead of the weekend, but the stronger dollar and lingering doubts about whether all OPEC producers would cut output in line with an agreement, capped gains.
Brent crude <LCOc1> settled up 21 cents, or 0.37 percent, at $57.10 a barrel, and U.S. crude <CLc1> settled up 23 cents, or 0.43 percent, at $53.99.
(Reporting by Saqib Iqbal Ahmed; Additional reporting by Rodrigo Campos and Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski)