* Dollar mixed as data spurs uncertainty over Fed
* Crude shrugs off rig count, falls with equities
* Long-dated U.S. bonds rally, short-dated notes slip (Add oil settlement prices)
By Herbert Lash
NEW YORK, Sept 4 (Reuters) - Global equity markets tumbled and the dollar traded mixed on Friday after a U.S. jobs report for August kindled uncertainty over whether the Federal Reserve will raise interest rates in two weeks.
Jobs increased by a less-than-expected 173,000 but this was offset by other data in the Labor Department report that were generally strong. The unemployment rate dropped to a near 7-1/2-year low and wages accelerated.
Also, the jobs count may be flawed because of a statistical fluke that has often led to sharp upward revisions to payroll figures for the month of August after initial weak readings.
Whether the Fed boosts rates in September or holds off for later, investors are preparing for an eventual raise, said Andrew Wilkinson, chief market strategist at Interactive Brokers LLC in Greenwich, Connecticut. A rate hike would be the U.S. central bank's first in almost a decade.
"Regardless of the global dislocation for equities, investors still seem to be preparing for a lift-off in the fed funds rate. There's not a lot to stop the onset of tightening at some point in the near future," Wilkinson said.
The equity selloff suggests there is deleveraging as investors are forced out of positions they can no longer afford, while high volatility still "hasn't been swept under the carpet," Wilkinson said. "When the volatility indexes are running at those levels, be on the watch," he said.
The CBOE Volatility Index, Wall Street's so-called fear gauge, was up 12.96 percent at 28.93, or double this year's mostly calm level until it erupted in mid-August.
European stocks ended the week lower, and U.S. stocks were poised for the same. The pan-European FTSEurofirst 300 index closed down 2.5 percent to 1,392.63 points, and was off 3.0 percent for the week. MSCI's all-country world stock index slid 1.76 percent, and its emerging markets index fell 1.99 percent.
On Wall Street, the Dow Jones industrial average fell 306.36 points, or 1.87 percent, to 16,068.4. The S&P 500 slid 34.03 points, or 1.74 percent, to 1,917.1 and the Nasdaq Composite lost 59.39 points, or 1.25 percent, to 4,674.10.
U.S. medium- and long-dated Treasuries prices rose, while short-dated prices were slightly lower.
The benchmark 10-year Treasury rose 12/32 in price to yield 2.1262 percent, while the U.S. two-year note traded flat to yield 0.7007 percent.
Euro zone bond yields fell further following a strong signal from the European Central Bank on Thursday that it is willing to take further steps to shore up the currency bloc's economy.
German 10-year yields, the euro zone benchmark, fell 7 basis points to 0.67 percent, their lowest level in more than a week.
For some, strong U.S. average hourly earnings and a drop in the unemployment rate to 5.1 percent support the view that the Fed will hike rates when policy-makers meet Sept. 16-17.
"It's one of the closer calls," said Marc Bushallow, director of fixed income at Manning & Napier in Rochester, New York.
But with U.S. investors heading into a long U.S. Labor Day weekend, lingering worries about China add to their unease.
"The market's confused. It doesn't know what to buy," said John Augustine, chief investment officer at Huntington Trust in Columbus, Ohio. "What markets seem to be playing today is a weaker China and a more hawkish Fed."
The dollar index of major currencies fell 0.20 percent, while the dollar last traded at 118.96 yen, or a loss of 0.92 percent.
The euro rebounded, up 0.22 percent at $1.1145.
Crude futures fell as traders paid little heed to a drop in the number of U.S. rigs drilling for oil, focusing instead on a supply glut and declining stock prices on Wall Street.
Brent crude, the global benchmark for oil, fell $1.07 to settle at $49.61 a barrel. U.S. crude's front-month settled down 70 cents to $46.05. (Reporting by Herbert Lash; Editing by Chizu Nomiyama)