(Updates prices to afternoon)

* Dollar rebounds from recent losses

* Jobs data seen as modestly hawkish

* Low chance of U.S. rate hike in March

* Stocks slump, led by technology shares

By David Gaffen

NEW YORK, Feb 5 (Reuters) - Global stock markets fell and the U.S. dollar rallied after a key U.S. jobs report painted a mixed picture of the labor market and left investors with a muddled view on rate hike prospects.

Oil prices dipped and were set to end the week lower after two weeks of gains.

While U.S. non-farm payrolls increased by just 151,000 jobs last month, well below forecasts of 190,000, the unemployment rate fell to 4.9 percent, the lowest since February 2008, and a sharp rise in wages suggested the labor market recovery remained on track.

Despite the weak headline figure, the rest of the report was taken hawkishly by markets. Fed funds futures contracts showed traders boosted chances of a Fed rate hike in December to about 40 percent. Before the report, they expected the Fed to wait until well into next year before raising rates.

The report helped the dollar rebound from two days of losses that forced the unwinding of large bets in favor of the greenback against other currencies worldwide. The dollar had weakened in recent days after dovish commentary from Fed officials, but some believe this report changes the calculus somewhat.

The increase in hourly wages and decline in the unemployment rate “serves as a caution to markets that it is too early to take a Federal Reserve March hike completely off the table,” said Mohamed El-Erian, chief economic advisor at Allianz in Newport Beach, California.

Wall Street was lower, led by weakness in technology shares after poor results from data company Tableau Software and networking platform LinkedIn. The S&P 500 information technology sector fell 3.2 percent.

The Dow Jones industrial average fell 222.84 points, or 1.36 percent, to 16,193.74, the S&P 500 lost 33.49 points, or 1.75 percent, to 1,881.96 and the Nasdaq Composite dropped 133.94 points, or 2.97 percent, to 4,375.62.

After a weak service-sector business sentiment report on Wednesday and dovish comments from New York Federal Reserve chief William Dudley, U.S. money markets shifted to forecast no move in official interest rates this year.

The Federal Reserve’s own forecasts, meanwhile, still suggest four increases by year-end, a pace many consider unlikely, which is likely to be addressed by Fed Chair Janet Yellen next week when she appears before Congress for semi-annual monetary policy testimony.

The dollar index rose 0.7 percent to 97.11, having endured a pretty rough week. The dollar has shed 2.7 percent this week as expectations that the Fed would raise rates at least once this year evaporated on signs of domestic weakness and broader concerns over global growth.

The dollar’s decline was spurred by traders unwinding complicated cross-market bets that involved borrowing in euro and yen and buying U.S. assets.

U.S. bond yields rose after the jobs report before falling back. The 10-year yield was little changed at 1.84 percent. Shorter-dated Treasuries were weaker, causing the yield curve to flatten, a signal of concern about economic slowdown. The 10-year yield has still fallen by 10 basis points since the start of this month.

Crude oil was mixed. Brent crude was up 0.2 percent at $34.52 a barrel, while U.S. crude fell 0.8 percent to $31.47 a barrel. (Editing by Bernadette Baum and Chizu Nomiyama)