* U.S. dollar rises after jobs data, pares gains later
* Euro falls against greenback
* Yen inversely tracks with U.S. bond yields
(Updates prices, market activity, adds commentary)
By Stephanie Kelly
NEW YORK, Feb 2 (Reuters) - The U.S. dollar rose on Friday against a number of currencies including the Japanese yen and the euro after strong national jobs data, but the greenback later pared gains and investors were not convinced advances would last past the day.
U.S. job growth surged in January and wages increased further, recording their largest annual gain in more than 8-1/2 years. Nonfarm payrolls jumped by 200,000 jobs last month after rising 160,000 in December, the Labor Department said.
The data contributed to the sentiment that inflation is picking up and higher interest rates are on the horizon, said Jeff Kravetz, regional investment director at U.S. Bank Wealth Management in Scottsdale, Arizona.
As a result, the U.S. bond market and the stock market began selling off on Friday, he said.
"Under these circumstances, the U.S. dollar is really the safe bet," he said. "But as things adjust and people get used to notion of higher rates, we might see a return back to modest U.S. dollar weakness, and that's really due to an improving economic profile overseas."
The dollar index , tracking the unit against a basket of major currencies, was up 0.58 percent at 89.185 at 2:55 p.m. EST (1955 GMT). On the day, the greenback scored its best daily performance since Oct. 26.
Against the yen, the dollar reached its highest since Jan. 23, and was last up 0.79 percent at 110.25.
The yen has correlated inversely with U.S. Treasuries. The 10-year yield hit a four-year high on the day and last edged to 2.8506 percent, while the 30-year rose to 3.0961 percent.After the jobs data, the euro fell against the dollar. While it pared losses during the day, it did not make up its decline and last fell 0.46 percent to $1.2451.
Investors, however, were optimistic about the single currency's overall performance.
"The euro has a lot more room to the upside," said Richard Scalone, co-head of FX at TJM Brokerage in Boca Raton, Florida.
The euro zone's economic revival and expectations of monetary tightening have made the euro more attractive for investors, while strong global growth around the world has encouraged investors to move cash out of the U.S. dollar.
A survey showed on Thursday that euro zone manufacturing continued to boom last month, bolstering a view that the European Central Bank is on track to normalize monetary policy. Sterling was at $1.4128, down 0.95 percent on the day.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates in 2018 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>(Reporting by Stephanie Kelly; Editing by Lisa Shumaker)
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