* Dollar climbs vs euro, yen after U.S. jobs data
* U.S. stocks edge up after strong payrolls data, Europe slips
* Bond prices sink as U.S. jobs growth surges past expectations
By Herbert Lash
NEW YORK, Nov 8 (Reuters) - An unexpected surge in U.S. jobs growth during October drove Wall Street stocks higher on Friday and in turn boosted the dollar and interest rates by raising expectations the Federal Reserve could scale back its economic stimulus as soon as December.
The Labor Department said employers added 204,000 new jobs, well above forecasts of 125,000, even though the unemployment rate rose to 7.3 percent.
"The first part of the equation for the Fed to taper is data showing the economy is getting better. If companies are doing well and business is good, you don't need to have zero percent short-term money in order for the stock market to do well," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.
The department said there was no "discernible" impact on payrolls from the 16-day federal government shutdown last month.
The jobs data and a separate report showing personal income grew 0.5 percent in September should please retailers as it boosts the sales outlook for the holiday season, said Russell Price, senior economist at Ameriprise Financial Services Inc in Troy, Michigan.
Most economists expected businesses to have been more cautious during the shutdown, he said, adding that "Clearly what transpired were businesses viewed the shutdown as a temporary phenomenon and that the economy was still growing and would continue to grow going forward."
The Dow Jones industrial average was up 90.83 points, or 0.58 percent, at 15,684.81. The Standard & Poor's 500 Index was up 15.72 points, or 0.90 percent, at 1,762.87. The Nasdaq Composite Index was up 53.41 points, or 1.38 percent, at 3,910.74.
U.S. Treasury prices fell on the prospect of Fed tapering, while German Bunds hit two-week lows on after the surprisingly strong U.S. jobs gains.
The benchmark 10-year U.S. Treasury note was down 37/32 in price to yield 2.7477 percent.
The rally on Wall Street helped a measure of global equity markets rebound. MSCI's all-country world index rose 0.08 percent.
European shares edged lower, with France underperforming after a rating downgrade by Standard & Poor's, which cut the French sovereign rating by one notch.
Still, many investors see increasing signs of a global recovery that will support equities in the longer term.
"We believe 2014 will see an increase in profitability across the region and this should translate into positive performance for European equity investors," said Andrew Arbuthnott, head of large-cap European equities at Pioneer Investments.
The pan-regional FTSEurofirst 300 index of leading European shares fell 0.14 percent to close at 1,295.17.
The Labor Department also revised upward by 60,000 its previous payroll reports for September and August in a report that pointed to a more robust economy going forward.
The dollar rose broadly, reversing a recent trend in which it has fallen on speculation the Fed would not start reducing its $85 billion a month in bond purchases until next year.
A Fed cutback at a time when the European Central Bank and Bank of Japan are in easing mode would boost the dollar's appeal.
The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.49 percent to 81.244, edging back toward a near two-month high of 81.46 on Thursday.
The euro fell 0.46 percent to $1.3356, having hit a session low of $1.3355, according to Reuters data.
Against the yen, the dollar gained 0.92 percent to 98.98.
Bund futures dropped nearly a percentage point to 140.87 at one point, their lowest since Oct. 25. Bunds settled 81 ticks lower at 141.02.
German 10-year yields rose 7 basis points to 1.76 percent .
Brent oil bounced off a four-month low to trade higher on the U.S. jobs data, while traders kept close watch over a meeting between Western powers and Iran over its nuclear program.
Brent was up $1.18 at $104.64 a barrel. U.S. oil was up 9 cents at $94.29 a barrel.