(Updates with opening of U.S. markets; changes dateline, previous London)
* Sterling dives 10 percent, recoups most losses
* U.S. jobs growth slows, jobless rate rises
* Wall Street slips, Europe's STOXX index lower
* Oil down but still tracking to strong week
By Lewis Krauskopf
NEW YORK, Oct 7 (Reuters) - Sterling recouped much of its losses on Friday after a stunning plunge amid fears over Britain's exit from the European Union, while stocks in major markets fell after a weaker-than-expected U.S. jobs report still did not sway expectations for a U.S. rate hike by year-end.
Sterling GBP=D4 plummeted in earlier trading, falling nearly 10 percent, on what traders called a "flash crash" that knocked the British currency to a 31-year low. Even before the sudden plunge, the currency had been under pressure this week as some national leaders called for Britain to make a "hard" exit from the EU. was last down 1.9 percent against the dollar at about $1.24.
"I think it's a warning shot from the markets to the UK about what type of potential volatility in sterling we may see down the line," said Shahab Jalinoos, global head of FX strategy at Credit Suisse (SIX:CSGN) in New York.
After the jobs report, the dollar was little changed against a basket of currencies .DXY after rising to two-month highs although it weakened 0.6 percent against the yen JPY= .
Data showed U.S. employment growth unexpectedly slowed for a third month in September and the jobless rate rose. Nonfarm payrolls rose 156,000, down from a gain of 167,000 jobs in August, the Labor Department said. the report, traders were virtually discounting chances that the Federal Reserve would raise rates at their next meeting in November, according to the CME FedWatch website. But they saw a roughly two-in-three chance for a rate hike in December, similar to bets from a day earlier.
Markets have been dominated by central bank policy, including a shift from the Bank of Japan last month, resurgence in talk of the European Central Bank possibly tapering its bond buying program, and the outlook for a Fed rate hike.
"What we all really want to know is, does it change anything on the Fed's thinking and in my opinion, it changes nothing," said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago. "Actually, even though the jobs number itself is a little bit lighter, the fact is there was more job growth."
In U.S. equity markets, the Dow Jones industrial average .DJI fell 72.56 points, or 0.4 percent, to 18,195.94, the S&P 500 .SPX lost 11.39 points, or 0.53 percent, to 2,149.38 and the Nasdaq Composite .IXIC dropped 25.70 points, or 0.48 percent, to 5,281.15.
The S&P industrials sector .SPLRCI fell 1.4 percent. Honeywell HON.N shares plunged after a disappointing profit report from the diversified manufacturer. gauge of stocks across the globe .MIWD00000PUS fell 0.5 percent.
The pan-European STOXX index .STOXX fell 0.9 percent. Shares of vouchers company Edenred EDEN.PA tumbled after a brokerage downgrade on the stock. Britain's FTSE 100 index .FTSE rose 0.6 percent, propped up by the fresh slump in sterling.
In choppy trading after the jobs report, benchmark 10-year U.S. notes US10YT=RR were last down 4/32 in price to yield 1.7567 percent. Yields rose to as much as 1.77 percent, the highest in four months. futures fell, pausing after a week of price growth supported by the prospect of a crude production cut by OPEC countries. Brent LCOc1 dropped 0.7 percent to $52.14 a barrel, while U.S. crude CLc1 fell 0.6 percent to $50.13.
Spot gold XAU= fell 0.9 percent and was on track for its worst week this year.