By Rodrigo Campos

NEW YORK, Jan 3 (Reuters) - World stocks dipped on Thursday

as traders took profits after equities hit an 18-month high in

the previous session, while the U.S. dollar climbed to a

three-week high against a basket of currencies on concerns about

more budget wrangling in Washington.

Data suggesting some momentum in the U.S. economy as the

year ended showed private-sector employers stepped up hiring in

December, limiting losses in stocks and further supporting the

greenback.

'The report now sets the stage as we expect a strong

non-farm payroll reading on Friday,' said Andrew Wilkinson,

chief economic strategist at Miller Tabak & Co in New York.

President Barack Obama and congressional Republicans face

two more months of tough talks on spending cuts and an increase

in the nation's debt limit as the hard-fought deal to avert the

'fiscal cliff' of automatic tax hikes and spending cuts covered

only taxes and delayed decisions on expenditures until March 1.

The MSCI world equity index dipped from an

18-month high before edging higher at 347.21. European stocks were up 0.4 percent.

The Dow Jones industrial average slipped 2.23 points,

or 0.02 percent, at 13,410.32. The Standard & Poor's 500 Index was up 1.67 points, or 0.11 percent, at 1,464.09. The

Nasdaq Composite Index was up 5.01 points, or 0.16

percent, at 3,117.28.

The dollar was up 0.4 percent against a basket of

major currencies at a three-week high of 80.13, although it

slipped 0.5 percent against the yen to 86.88.

'We really just kicked the can down the line and we're set

up for another fight on the hill in the next month and a half or

so,' said John Doyle, currency strategist at Tempus Consulting

in Washington. 'That put a damper on overall risk appetite.'

The euro, which had touched an 8-1/2 month high against the

dollar on Wednesday, was down 0.6 percent at $1.3108.

The benchmark 10-year U.S. Treasury note was

down 6/32, the yield at 1.8565 percent.

DOLLAR JUMP HITS COMMODITIES

The dollar's strength and rising oil supplies pushed crude

prices lower, with Brent down 0.5 percent to under $112

a barrel. U.S crude futures were down 0.2 percent at

$92.96.

Analysts expect oil prices to drop in 2013 as supply

outweighs demand, especially after U.S. crude production hit a

19-year high in 2012 and Russia pumped more oil to remain ahead

of Saudi Arabia in production.

Gold futures followed commodities lower and were down about

0.6 percent at $1,678.40 an ounce.

Thursday's retreat across riskier asset markets might have

been sharper but for data showing activity in China's services

sector and at U.S. factories expanded in December, brightening

the outlook for global growth.

China's official purchasing managers' index for the

non-manufacturing sector rose to a four-month high in December,

adding to signs of a revival in the world's second-largest

economy.

Investors will now turn their attention to Friday's December

U.S. employment report. It is expected to show modest job growth

of around 150,000, compared with 146,000 in November.

(Reporting by Rodrigo Campos; Editing by Dan Grebler)

((rodrigo.campos@thomsonreuters.com)(+1.646.223.6344)(Reuters

Messaging: rodrigo.campos.thomsonreuters.com@reuters.net))

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