By Chuck Mikolajczak

NEW YORK (Reuters) - A gauge of global stocks dropped more than 1%, while U.S. Treasury yields and the dollar rose on Friday after a shockingly strong U.S. jobs report renewed concerns the Federal Reserve may remain aggressive in its path of interest rate hikes as it tries to tame inflation.

The report from the Labor Department showed nonfarm payrolls surged by 517,000 jobs in January, well above the 185,000 estimate of economists polled by Reuters, with data for December also being revised higher. Average hourly earnings increased 0.3%, as expected, down from the 0.4% in the prior month, while the unemployment rate of 3.4% was the lowest since 1969.

Equities have rallied to start the year on expectations the Fed may be forced to pause or even pivot from its rate hikes in the back half of the year, growing more confident after comments from Fed Chair Powell on Wednesday that acknowledged the "disinflationary" process may have begun. Additional fuel was added after policy announcements by the European Central Bank (ECB) and Bank of England (BoE) on Thursday.

"While it is very helpful to see the jobs increasing, it is really a horse race between that ongoing income and how quickly inflation comes down," said Lisa Erickson, head of public markets group at U.S. Bank Wealth Management in Minneapolis, Minnesota.

"The Fed really is in a tough place trying to navigate between keeping those price pressures down and not causing too much economic pain."

Interest rate futures now indicate the Fed is likely to deliver at least two more rate hikes, taking the benchmark rate to above 5%.

U.S. stocks closed lower, with additional downward pressure being supplied by a 2.75% decline in Google parent Alphabet and an 8.43% drop in Amazon after their quarterly results.

Apple, however, helped prevent further declines, as the stock erased losses in premarket trading to close 2.44% higher following its quarterly earnings.

Earnings are now expected to decline 2.7% for the quarter from the year-ago period, according to Refinitiv data, down from the 1.6% fall expected at the start of the year.

Other data showed the U.S. services industry rebounded strongly in January, according to the Institute for Supply Management (ISM).

The Dow Jones Industrial Average fell 127.93 points, or 0.38%, to 33,926.01; the S&P 500 lost 43.28 points, or 1.04%, to 4,136.48; and the Nasdaq Composite dropped 193.86 points, or 1.59%, to 12,006.96.

Even with Friday's declines, both the S&P 500 and Nasdaq notched weekly gains, with the Nasdaq securing a fifth straight week of gains, its longest since October-November 2021.