GLOBAL MARKETS-Shares, dollar rally on U.S. jobs report

* Wall Street gains on better-than-expected February payrolls report * European shares rise further, MSCI world index hits 4-3/4 yr high * Dollar touches 3-1/2-year peak against yen By Herbert Lash NEW YORK, March 8 (Reuters) - World equity markets rallied and the dollar strengthened on Friday after an unexpectedly sharp gain in U.S. employment in February added to investor sentiment that the world's biggest economy is gaining traction. Wall Street opened higher, pushing the Dow to a fourth consecutive intraday record high, while European shares extended their gains to a session high on the increase in hiring, which pushed the U.S. unemployment rate to a four-year low. The dollar touched a fresh 3-1/2-year high against the yen and a three month high against the euro, while U.S. Treasuries sank on the payrolls report. Nonfarm payrolls surged 236,000 jobs in February, the Labor Department said, handily beating economists' expectations for a gain of 160,000. "The U.S. economy just hit it out of the park. The February non-farm payrolls data was expected to show the economy moving forward slowly but surely, not fast-forward like this," Jason Conibear, trading director at forex specialists Cambridge Mercantile in Toronto. U.S. stocks pared early gains. The February report shows a labor market that continues to move sideways at a frustratingly slow trend for the Federal Reserve, said Ellen Zentner, senior U.S. economist at Nomura Securities, New York. "This is not a report that is going to inspire any kind of change in monetary policy, it is certainly not going to inspire any kind of discussion around this stellar job report that make them decide to end QE earlier than expected," Zentner said. The Dow Jones industrial average was up 15.43 points, or 0.11 percent, at 14,344.92. The Standard & Poor's 500 Index was down 0.35 points, or 0.02 percent, at 1,543.91. The Nasdaq Composite Index was down 2.06 points, or 0.06 percent, at 3,230.03. In Europe, the FTSEurofirst 300 index of top regional shares was up 0.7 percent at 1,193.88 points. Earlier, MSCI's all-country world equity index rose to its highest level since late June 2008, and Japan's Nikkei had hit a 4-1/2 year high in Asian trading. Prices for benchmark 10-year notes dropped 23/32 after the data to yield 2.075 percent, its highest since April. The euro fell against the dollar, erasing gains from Thursday when European Central Bank (ECB) President Mario Draghi gave less dovish policy signals than expected. The euro fell 1 percent to $1.2975. Against the yen the dollar climbed as high as 96.54 yen, the highest since August 2009. It was last at 96.26 yen, up 1.5 percent, its biggest one-day gain since Feb. 11 at current prices. Brent crude oil futures fell below $110 a barrel, pressured by a stronger dollar after the U.S. jobs report, higher-than-expected supply from the North Sea and OPEC, and investors selling out of commodities in favour of equities. Brent futures were down 96 cents to $110.19 a barrel at 1406 GMT. Brent is down for the fourth consecutive week, its longest weekly losing streak since May 2012. U.S. oil was down 2 cents to $91.54