(Updates with market activity) By Ross Kerber and Yoruk Bahceli Aug 6 (Reuters) - U.S. Treasury yields rose Friday after a strong jobs report that was in line with goals the Federal Reserve has set to start unwinding stimulus. The yield on the benchmark 10-year note was up 8.7 basis points at 1.3036%, its highest of the day, as equity indexes closed at record highs. Much of the rise in yields came after Labor Department statistics showed U.S. job growth rose solidly in July amid demand for workers in the labor-intensive services industry. Nonfarm payrolls increased by 943,000 jobs last month after rising 938,000 in June, the department said in its closely watched employment report. The report could help sway doves at the Fed to reduce support for the economy trying to move past the COVID-19 pandemic, said Kevin Flanagan, head of fixed income strategy at WisdomTree Asset Management. Treasury yields had already seemed poised to move higher, he said, and Friday"s report "adds more fuel to the fire." Fed Fund Futures, a widely-used security for hedging short-term interest rate risk, priced in a more than 90% chance of a 25-basis point tightening by January 2023, after the jobs data. That was higher than last week"s level after the Fed"s two-day meeting. Traders foresaw an 82% chance that the Fed will hike rates by 25 basis points by December of next year, up from 78% after the Fed meeting last week. Yields were already heading up after U.S. Federal Reserve Vice Chair Richard Clarida suggested on Wednesday that conditions for hiking interest rates might be met as soon as late 2022, earlier than market expectations. The 10-year yield, the world"s most significant interest rate, touched 1.127% on Wednesday, its lowest since February and in line with steady declines that drove the note down from its high this year of 1.776% in April. The yield on 10-year Treasury Inflation Protected Securities was -1.058%, above its record low of -1.216% earlier this week. The 10-year TIPS break-even inflation rate was at 2.366%, slightly higher than Thursday. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 109 basis points, 7 basis points higher than Thursday"s close. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up almost a basis point at 0.2103%. August 6 Friday 4:02PM New York / 2002 GMT Price Current Net Yield % Change (bps) Three-month bills 0.05 0.0507 -0.002 Six-month bills 0.05 0.0507 0.000 Two-year note 99-213/256 0.2103 0.008 Three-year note 99-230/256 0.4099 0.035 Five-year note 99-72/256 0.7725 0.054 Seven-year note 99-120/256 1.0793 0.070 10-year note 102-240/256 1.3036 0.087 20-year bond 106-120/256 1.8574 0.094 30-year bond 109-140/256 1.9506 0.089 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.25 1.00 spread U.S. 3-year dollar swap 12.25 0.25 spread U.S. 5-year dollar swap 9.00 0.25 spread U.S. 10-year dollar swap 2.25 0.00 spread U.S. 30-year dollar swap -26.75 -0.75 spread (Reporting by Ross Kerber and Yoruk Bahceli; editing by Sujata Rao, Jonathan Oatis and Sonya Hepinstall) Our Standards: The Thomson Reuters Trust Principles.