* Payrolls increase 209,000 in July, less than expected
* Expectations of early interest rate hike had hit stocks
* US Treasuries yields drop, gold bounce back
By Blaise Robinson
PARIS, Aug 1 (Reuters) - Shares trimmed losses and the dollar dipped on Friday after the U.S. reported job growth slowed more than expected in July and the unemployment rate unexpectedly rose, easing worries that interest rates will rise soon.
U.S. Treasuries yields dropped, with benchmark 10-year notes last up 2/32 in price to yield 2.55 percent, down from 2.58 percent before the jobs data was released, while gold bounced back from a recent slide.
The Labor Department said on Friday nonfarm payrolls increased by 209,000 last month after surging by 298,000 in June, missing economists' expectation of an increase of 233,000 jobs.
"The number was a fairly big miss, but it means the Americans may hold off a little bit longer from raising rates," said Joe Neighbour, trading analyst at London-based firm Central Markets.
While encouraging for the global economy at large, the prospect of strong job numbers had fuelled expectations the Fed would raise rates soon. The U.S. central bank's ultra-loose monetary policy has helped drive a two-year rally in equity markets.
U.S. stock index futures trimmed losses after the data. The FTSEurofirst 300 index of top European shares was down 0.9 percent, partly recovering from a 1.3 percent loss before the data was released. The MSCI All-Country World index was down 0.4 percent.
The dollar, which had been hovering just below a 10-month high against a basket of currency earlier on Friday, dipped after the data.
Despite the lower-than-expected jobs data, investors remained cautious. A strong U.S. GDP figure earlier this week and conflict in Ukraine and the Middle East were keeping them on edge.
"The market now believes the Fed will move sooner rather than later, and the momentum is turning against the 'safe play of being long equities'," said Steen Jacobsen, chief investment officer at Saxo Bank, in Copenhagen.
Those views got some confirmation when Dallas Federal Reserve Bank President Richard Fisher told a television interviewer it was "very possible" the Fed would start raising rates early next year if the economy kept improving. Speaking on CNBC on Friday, Fisher declined to specify when he expects the Fed to move.
In addition, the threat of a conflict between Russia and Ukraine appears to be affecting the euro zone economy. A survey showed on Friday the region's manufacturing growth easing in July.
"The slowdown from the confidence peak earlier this year is noticeable," Christian Schulz, senior economist at Berenberg Bank in London. "Especially in Germany, it reflects the Putin factor, which has aggravated the problems of an already troubled Russian economy."
The cautious mood was also felt in the bond market, where yields on the riskier Spanish and Italian bonds edged higher.
Portuguese bond yields also rose on Friday, amid expectations Lisbon will bail out the country's biggest bank after it reported massive losses.
Brent crude oil lost ground, as oversupply in the Atlantic basin and low demand outweighed worries over political tensions in the Middle East, North Africa and Ukraine. (Additional reporting by Sudip Kar-Gupta in London; Editing by Larry King)