WASHINGTON (Reuters) -- U.S. employers added an unexpectedly strong 211,000 jobs in March and the jobless rate slipped to a 4-1/2-year low, according to a government report on Friday that underlined a relatively vigorous labor market.

The pace of hiring last month exceeded the 190,000-job gain forecast by analysts, who also had expected the unemployment rate, which fell to 4.7 percent, to be unchanged at February's 4.8 percent.

The March unemployment rate matched the January rate, but it has not been lower than that since July 2001, when it was at 4.6 percent.

Evidence of tightening labor markets after more than 2-1/2 years of unbroken monthly gains in hiring has sparked worry about potential inflationary wage gains, which might force the Federal Reserve to push interest rates up to contain them.

"I think the Fed wants the unemployment rate to stop going down pretty much immediately, and if it doesn't the Fed will keep tightening," said economist Jim O'Sullivan of UBS Securities in Greenwich, Connecticut. Bond prices tumbled sharply on concern the jobs report meant interest rates were headed higher.

The 30-year U.S. Treasury bond U.S.30YT=RR slid 1-8/32s points for a yield of 5.06 percent, its first break above 5 percent since December 2004 and a big jump from Thursday's 4.97 percent close.

Benchmark 10-year notes U.S.10YT=RR slumped 20/32 for a yield of 4.99 percent, its highest in nearly four years and up from 4.90 percent Thursday.

The dollar reversed course after the report and rose against the euro. The possibility of higher U.S. interest rates makes the dollar more attractive for foreign investors.

Stock prices also suffered because of revived interest-rate worries stemming from steady job growth. The Dow Jones Industrial Average lost 96.46 points to end at 11,120.04 while the Nasdaq composite index shed 22.15 points and closed at 2,339.02.

The job report showed average hourly earnings rose 0.2 percent to $16.49 in March rather than the 0.3 percent expected by economists. Over the 12 months through March, wages rose 3.4 percent, slowing from 3.5 percent gain in the 12 months through February.

The Labor Department modestly revised down new hiring in February to 225,000 jobs instead of 243,000 reported last month while January new jobs totaled 154,000 instead of 170,000 -- a cumulative reduction of 34,000 in the number of jobs created over the two months.

The last time that more than 200,000 jobs were created in two consecutive months was in the April-May 2004 period.

A later report from the Economic Cycle Research Institute showed inflation pressures eased in March because industrial commodity prices were lower as were loan applications. Its Future Inflation Gauge, designed to anticipate cyclical swings in the rate of inflation, fell to 121.3 in March from 122.6 in February.

The Federal Reserve has raised U.S. short-term interest rates 15 times since mid-2004, bringing its bellwether federal funds rate to 4.75 percent, and many analysts now think the U.S. central bank is near the end of its rate-rising cycle.

Economist Elisabeth Denison of Dresdner Kleinwort Wasserstein in New York said modest wage increases last month were reassuring. "We've got tightening resources but modest ... pressure on wages," she noted. "So no reason to panic for the Fed, but certainly more reason for them to take rates a little higher," Denison added. A third report on Friday, from the Commerce Department, showed inventories of unsold goods at wholesalers rose in February by a stronger-than-forecast 0.8 percent because of rising stocks of unsold new cars and drugs. Economists are watching closely for any sign of broad-based weakening in consumer spending, which fuels two-thirds of U.S. national economic activity. Not every sector recorded job growth in March