*

Strong US jobs growth dispels worries of a recession

*

Traders erase bets for a half-point November rate cut

*

Dollar scales fresh seven-week high versus yen

*

S&P500 futures down 0.3%, STOXX 600 down 0.2%

*

Brent up further 1%

(Updates at 0900 GMT)

By Alun John and Kevin Buckland

LONDON/TOKYO, Oct 7 (Reuters) - The benchmark 10-year

Treasury yield rose to 4% on Monday after last week's U.S.

labour market data dispelled fears of a recession, driving a

paring of rate-cut bets, and supporting the dollar and equities

at least initially.

Potentially market moving data this week is not due until

Thursday in the form of U.S. CPI, and until then the tone

remains set by Friday's data which showed the U.S. economy

unexpectedly added the most jobs in six months in September.

Markets slashed bets on a 50-basis-point rate cut at the

Federal Reserve's next policy announcement on Nov. 7 - which had

been above 50% a week ago.

That sent yields on government bonds higher, with the

benchmark 10-year Treasury yield hitting 4% for the first time

in two months on Monday, up 2 basis points on the day and

building on Friday's 13 bp surge.

Shares in Europe, which had risen in the aftermath of the

jobs data, dipped 0.2% with those like banks,

that benefit from higher rates, gaining, and real estate,

which does not, falling.

U.S. S&P500 futures fell 0.3%, though the index

gained 0.9% Friday, and is back around all time highs.

"What came out of last week is pretty obvious, if we just

stick to the macro economic situation, there is no recession, no

inflation, central banks are in a rate cutting cycle and, on top

of that, China is contributing to this story too, so let's

enjoy," said Samy Chaar, chief economist at Lombard Odier.

"If you want to think about risks, the purely economic risks

have passed - except for some less straightforward stories in

Europe centred around Germany - but there's geopolitics and the

U.S. elections are getting closer."

Hezbollah rockets hit Israel's third largest city Haifa

early on Monday as the country looked poised to expand ground

incursions into southern Lebanon on the first anniversary of the

Gaza war, which has spread conflict across the Middle East.

Brent crude oil futures were up 1.3% at $79.08 a

barrel, just shy of Friday's one month high, having posted the

biggest weekly gain in more than a year last week.

Asia shares rose, though Chinese onshore

markets remain on holiday until Tuesday, with investors waiting

to see whether the surge in stocks on news of incoming economic

stimulus will continue.

STRONG DOLLAR

Higher U.S. yields supported the dollar, particularly

against the rate sensitive Japanese yen, with the greenback

pushing as high as 149.10 yen for the first time since

Aug. 16.

Gains were arrested after Japan's top currency diplomat,

Atsushi Mimura, said officials were monitoring foreign exchange

moves, including speculative trading, "with a sense of urgency",

and the dollar was last at 148.3 yen.

The dollar index, which tracks the currency against a basket

including the euro, yen and pound, was at 102.5, a whisker off a

seven-week top hit Friday.

"Looking at the next three weeks, we cannot identify a clear

catalyst that can reverse the course for the dollar, and a

consolidation of recent gains looks more likely," said ING

analysts in a note.

European Central Bank policy makers now appear increasingly

willing to cut rates this month, in line with market pricing,

removing one factor that had supported the euro against the

dollar.

French Central Bank Chief Francois Villeroy de Galhau was

the latest to join the chorus, telling an Italian newspaper in

remarks published on Monday, that a rate cut in October was

quite probable.

But euro zone bonds were focused on developments on the

other side of the Atlantic and the German 10-year Bund yield

rose 4 bps to 2.54%, a one month high.

Gold was flat at $2,650 an ounce.