(Updates to afternoon trading after Yellen comments)
* Yellen signals rate hike this month; Wall St flat
* U.S. yields flat, dollar down
* Oil rebounds from recent weakness, remains range bound
By Sinead Carew
NEW YORK, March 3 (Reuters) - U.S. Treasury yields hit session highs before flattening while stocks were largely unchanged on Friday after Federal Reserve Chair Janet Yellen said the Fed is set to raise its benchmark interest rate this month as long as economic data on jobs and inflation holds up.
Yellen was widely expected to signal for a rate hike after a week of hawkish comments from several Federal Reserve officials. After her comment, the implied probability of a March rate hike surged to about 82 percent from 77.5 percent the previous day, according to CME Group's FedWatch tool.
The dollar index, which measures the greenback's strength against a basket of six major currencies, fell to a session low of 101.66 before clawing back some losses. It was last down 0.3 percent. The index was still on track for its fourth straight weekly gain.
“Equities can handle hikes when it’s in the face of stronger growth. It’s the investment-grade corporate market and Treasury market that will have to reckon with hikes more than equities will,” Brian Jacobsen, Chief Portfolio Strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
Before flattening out, U.S. 7-year Treasury yields briefly hit their highest point since Dec. 29, rising to 2.354 percent while U.S. 5-year Treasury yields hit the highest since Dec. 28, 2.061 percent, before easing.
At 1:26 p.m. ET, the Dow Jones Industrial Average was down 23.31 points, or 0.11 percent, to 20,979.66, the S&P 500 had lost 3.59 points, or 0.15 percent, to 2,378.33 and the Nasdaq Composite had dropped 5.87 points, or 0.10 percent, to 5,855.36.
The MSCI global stock index was down 0.2 percent.
Oil prices rose as the weaker dollar encouraged buying, though gains were capped by unchanged Russian output for February, a sign of its weak compliance with a global deal to cut supplies.
Benchmark Brent crude futures were up 0.9 percent at $55.57 a barrel after closing down 2.3 percent in the previous session. WTI futures gained 1 percent, to $53.14.
The Mexican peso rallied to its strongest level since the day following the U.S. presidential election after U.S. Secretary of Commerce Wilbur Ross said a new mechanism should be created to stabilize the exchange rate. (Additional reporting by Rodrigo Campos, Saqib Iqbal Ahmed and Dion Rabouin in New York, Vikram Subhedar in London, Dhara Ranasighe and Wayne Cole in SYDNEY; Editing by Bernadette Baum and Nick Zieminski)