A look at the day ahead in U.S. and global markets from Mike Dolan If the Federal Reserve is now wary of a sudden fracture in the U.S. labor market, it won't be unduly alarmed by what it's seen of December employment so far.

With Friday's payrolls report looming over New Year markets all week - pointing to the first weekly loss in global equities since October - most other readouts of U.S. hiring last month looked to still be in rude health.

The number of Americans filing new claims for jobless benefits dropped to a two-month low last week, ADP's private sector payrolls increased by 164,000 - the biggest gain in four months - and job cuts announced by U.S.-based employers dropped 24% last month. While falling job openings did show some cooling of labor demand, the numbers were for November.

All of which points to another robust national employment picture later today - with forecasts angling for a payrolls increase of 170,000 jobs, down from November's 199,000. The jobless rate is expected to tick back up to 3.8%.

Even though minutes of the Fed's December policy meeting, which electrified rate cut hopes last month, pointed to fears of "overly restrictive" policy in the event of an "abrupt downshift" in employment, there's little sign of that yet.

All of which has seen futures markets gradually pare back bets on the extent of 2024 Fed easing all week.

Just ahead of Friday's jobs report, the chance of the first quarter-point Fed cut by March dipped below 70% compared to being fully priced late last month. And the amount of overall easing in 2024 was reduced to 133 basis points, compared to 150bps just before the holiday.

While the staffing picture should underline "soft landing" hopes for the economy, the interest rate picture still dominates the overall market mood.

Two-year Treasury yields jumped above 4.4% on Friday for the first time since Dec. 20, with 10-year yields back above 4% and at their highest since the Fed meeting on Dec. 13. The dollar is getting a shot in the arm from the Fed rethink and also hit its best level since the day after the Fed bombshell dropped last month.

The rates recalibration has made for a miserable opening week for stocks, with Wall St benchmarks ending in the red in all three trading days of 2024 so far and futures down again ahead of Friday's bell.

Including the last two days of December, the five-day slide in the S&P500 is the longest losing streak since September and, just like 10-year Treasury yields, the index has returned to Fed-day levels.

The VIX index of Wall St equity volatility closed at its highest level since mid-November on Thursday.

Elsewhere, oil and commodity markets were steadier. The United Nations food agency said its world food price index ended last year about 10% below its year-earlier level.

European stocks were lower as they digested news of an expected jumpback in headline annual inflation in the euro zone for December. But the inflation rate came in below forecast and under 3% and, annual base effects aside, underlying disinflation momentum remained in train with producer prices plunging again.

In China, stocks stuttered yet again in the gloomy economic picture there. But hopes of more monetary easing from the People's Bank of China saw yields on the benchmark 10-year government bond fall to 2.525% - the lowest since April 2020.

Key diary items that may provide direction to U.S. markets later on Friday: * U.S. Dec employment report, U.S. Dec ISM service sector survey, U.S. Nov Factory orders; Canada Dec employment report * Richmond Federal Reserve President Thomas Barkin speaks * U.S. corporate earnings: Constellation Brands

(By Mike Dolan, editing by Nick Macfie mike.dolan@thomsonreuters.com)