GLOBAL MARKETS-Dollar surges after US payrolls blast past expectations

(Updates throughout with US jobs data at 1250 GMT)

By Amanda Cooper

LONDON, Oct 4 (Reuters) - The dollar soared on Friday after data showed the U.S. economy added far more jobs than expected in September, quashing expectations for another jumbo rate cut from the Federal Reserve and soothing some concern about the outlook for growth.

The U.S. Bureau of Labor Statistics said 254,000 workers were added to nonfarm payrolls last month, well above the 140,000 economists had expected, while August's number was upwardly revised to 159,000, from an original 142,000.

The dollar was set for its biggest one-day gain against a basket of major currencies in four months, rising 0.6% on the day, as government bond yields rose and traders ditched their bets that the Fed will cut rates by half a point next month.

"Overall, though, despite the much stronger than expected figures, this report is unlikely to materially alter the FOMC's policy outlook," Pepperstone market strategist Michael Brown said.

"For sentiment, the forceful 'Fed put' should see the path of least resistance continuing to lead higher for equities over the medium-run, though conviction in the short-term could well be somewhat lacking, owing to ongoing geopolitical risks in the Middle East," he said.

Investor sentiment has been jittery this week, as flaring tensions in the Middle East raise the risk of serious disruptions to global crude supply, setting crude oil prices on course for their biggest weekly gain in two years.

U.S. President Joe Biden said on Thursday that the U.S. was discussing strikes on Iran's oil facilities, when asked whether he would support Israel's strikes in retaliation for Tehran's missile attack on Israel.

Biden's comments sparked a surge in oil prices, which had already been on the rise this week.

Brent crude futures rose as much as 1.8% earlier on Friday, retreating after the payrolls report in the face of the stronger dollar to $78.09 a barrel, up 0.6% on the day. U.S. futures were up 0.6% at $74.20.

U.S. stock futures rallied sharply, up between 0.7% and 1%. The data has lowered the chances of a big equities-friendly rate cut next month, but it also served to reassure investors over the resilience of the world's largest economy.

"Today's data hit a grand slam with payrolls coming in strong, positive revisions, and unemployment falling. The economy is heading into the post-season solidly. This is a beat on every aspect and the Fed must be smiling as they got their bats out!" Lindsay Rosner, head of multi-sector investing, Goldman Sachs Asset Management, said.

A slew of data releases this week had already pointed to a U.S. economy still in solid shape.

With the prospect of a big November cut from the Fed now off the table, gold prices tumbled. Spot gold, which has vaulted to record highs around $2,700 an ounce, dropped 0.4% to $2,645.

The Japanese yen bore the brunt of the dollar buying, weakening after the jobs numbers to leave the U.S. currency up 0.9% at 148.365.

The yen had already been under pressure from more dovishness from Tokyo officials this week. New Prime Minister Shigeru Ishiba said this week that economic conditions in the country were not ripe for more rate hikes by the Bank of Japan (BOJ), reversing the hawkish tone he struck prior to his election victory.

The euro, meanwhile fell 0.6% to $1.0966, having hit two-month lows, while the pound fell 0.3% to $1.3092, surrendering earlier gains made after Bank of England chief economist Huw Pill said high interest rates were not a key reason for weakness in British business investment.

(Additional reporting by Rae Wee in Singapore and Davide Barbuscia in New York; Editing by Jacqueline Wong, Andrew Heavens, Chizu Nomiyama and Hugh Lawson)