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NEW YORK (Reuters) - World equity markets rallied and the U.S. dollar strengthened on Friday after an unexpectedly sharp jump in U.S. employment in February reinforced the view that the world's biggest economy is gaining traction.
The Dow Jones industrial average posted its fourth consecutive intraday and closing record highs, while European shares and a gauge of global equity markets rose to their highest levels in more than 4-1/2 years.
U.S. equities ended the session in a surge that put the benchmark S&P 500 index less than 1 percent away from a record closing high. Advancing stocks outnumbered declines by more than 2 to 1 on both the New York Stock Exchange and Nasdaq.
The Dow is up almost 10 percent so far this year, while the S&P has gained almost 9 percent.
The dollar touched a 3-1/2-year high against the yen and a three-month peak against the euro, but U.S. Treasuries sank on the payrolls report, which showed the U.S. unemployment rate fell to a four-year low of 7.7 percent last month.
Nonfarm payrolls added 236,000 jobs in February, the Labor Department said, handily beating economists' expectations of a gain of 160,000.
"We're seeing growing inflows coming into the asset class. This is sort of a sweet spot, with improving U.S. job data while central banks around the world are pledging to keep printing money," said David Thebault, head of quantitative sales trading at Global Equities in Paris.
Adding to the stream of encouraging data was a 1.2 percent gain in U.S. wholesale inventories in January to $504.4 billion - the fastest pace of growth since December 2011. The strong reading followed a revised 0.1 percent rise in December 2012.
JPMorgan Chase (JPM.N), Bank of America (BAC.N) and Goldman Sachs & Co (GS.N) weighed on the rally, as banks had advanced recently ahead of the Federal Reserve's stress test results that showed they had enough capital to withstand a severe downturn.
Despite the strong market reaction, last month's labor report showed a job market that continues to move sideways at a frustratingly slow trend for the Fed, said Ellen Zentner, senior U.S. economist at Nomura Securities in New York. The length of time people are unemployed deteriorated, the number of discouraged workers increased, voluntary job labor fell and the labor force participation rate declined, all items Fed policymakers pay close attention to, she said.
"This is not a report that is going to inspire any kind of change in monetary policy, it is certainly not going to inspire any kind of discussion around this stellar job report that makes them decide to end QE earlier than expected," Zentner said, referring to the Fed's asset-buying program.
The Dow Jones industrial average .DJI closed up 67.58 points, or 0.47 percent, at 14,397.07. The Standard & Poor's 500 Index .SPX rose 6.92 points, or 0.45 percent, at 1,551.18. The Nasdaq Composite Index .IXIC added 12.28 points, or 0.38 percent, at 3,244.37.
For the week, the Dow and S&P both rose 2.2 percent, while the Nasdaq gained 2.4 percent.
The broad rally prompted some investors to seek out areas of relative value in southern Europe, which had been hit anew recently over resurgent political risk in the region.
The FTSEurofirst 300 .FTEU3 index of top European shares closed 0.85 percent higher at 1,195.20.
Earlier, MSCI's all-country world equity index .MIWD00000PUS rose to its highest level since late June 2008, and Japan's Nikkei .NK225 hit a 4-1/2 year high in Asian trading. The MSCI index was up 0.35 percent at 360.18.
U.S. Treasuries yields have pushed steadily higher this week as early data pointed to a bigger rise in payrolls than previously expected and thus a swifter healing of the labor market.
Prices for benchmark 10-year notes dropped 18/32 to yield 2.05558 percent.
The euro fell against the dollar, erasing gains from Thursday, when European Central Bank President Mario Draghi gave less-dovish policy signals than expected.
The euro fell 0.8 percent to $1.2998, extending losses against the dollar after Fitch cut the credit rating of Italy's sovereign debt following recent elections.
Against the yen the dollar climbed as high as 96.54 yen, the highest since August 2009. It was last at 96.08 yen, up 1.34 percent in its biggest one-day gain since February 11.
Brent crude futures fell as the U.S. jobs data strengthened the dollar.
Brent futures settled down 30 cents at $110.85 a barrel. Brent closed out the week higher, breaking three straight weeks of decline.
U.S. oil rose 39 cents to settle at $91.95.
Additional reporting by Marc Jones and Richard Hubbard in London; editing by Chizu Nomiyama, Dan Grebler and Nick Zieminski