FOREX-Dollar jumps after strong U.S. jobs report

* Dollar index at new 11 1/2-year high

* U.S. jobs data unexpectedly strong

* Euro dips under $ 1.09; ECB to start bond buying next week (Adds dollar gains, U.S. jobs data, quotes and changes byline and dateline; previous LONDON)

By Michael Connor

NEW YORK, March 6 (Reuters) – The dollar jumped on Friday to an 11-1/2 year high against a basket of currencies as news of robust U.S. employment growth bolstered market sentiment that the Federal Reserve was closer to raising interest rates.

Before a U.S. employment report on Friday, the dollar had already hit an 11-1/2 year high against the euro as interest rate differentials between America and Europe widened in favor of U.S. Treasuries.

The euro was last at $ 1.0857 against the dollar, off 1.55 percent for the day. It slipped below $ 1.10 on Thursday, when the European Central Bank set a Monday start for a 1.1 trillion bond-buying program meant to lower eurozone interest rates.

The dollar index, which values the greenback against six other major currencies, was last up 1.3 percent to 97.647, a hair beneath an earlier high of 97.696 last seen in September 2003.

The dollar’s gains accelerated after the government reported that U.S. nonfarm payrolls grew by 295,000 in February, exceeding expectations of 240,000, and the unemployment rate fell to a 6 1/2-year low of 5.5 percent.

It was another strong month of jobs growth and fuelled expectations the Fed will raise rates sooner rather than later.

“We feel the economy is in a position for the Fed to begin normalizing policy,” said Sam Bullard, senior economist at Wells Fargo Securities in Charlotte, North Carolina. “We think it is on the path to make a rate change in June.”

The gap between German and U.S. bond yields was near its widest for at least 25 years and last stood at 1.84 percent, according to Thomson Reuters data dating back to 1990.

“What we have now is what markets speculated about for quite some time, which is a combination of more quantitative easing for the ECB and the market positioning itself for the start of a Federal Reserve hiking process,” said Jane Foley, senior currency strategist at Rabobank in London.

The dollar also rose sharply against the Japanese yen after the jobs data. It was last up 0.80 percent at 121.09 yen, according to Thomson Reuters data.

(Reporting by Michael Connor in New York; Editing by Lisa Von Ahn)

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