* U.S. nonfarm payrolls rise in July, help dollar
* Dollar hits two-month high vs yen
* Jobs report bolsters Sept Fed rate-hike prospects (Recasts with updated prices, U.S. jobs report and comment; changes byline, dateline, previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 7 (Reuters) - The dollar climbed to its highest level in nearly four months on Friday after data showed the world's largest economy created jobs at a solid pace last month, further bolstering expectations the U.S. Federal Reserve will raise interest rates next month.
The greenback posted two-month highs against the yen and nearly five-month highs versus the Swiss franc following a U.S. employment headline number that was slightly below the consensus forecast, but nonetheless depicted a strengthening labor market.
U.S. nonfarm payrolls increased 215,000 last month, compared with market expectations for a rise of 223,000 jobs, but upward revisions to the previous months and a gain in average hourly earnings were viewed positively by market participants. ID:nLNN7JEBEB
Following the jobs report, the swaps market was pricing in a 52 percent chance of a September rate hike, up from 47 percent before the data's release.
"Today's figure has given (Fed chair) Janet Yellen and her Fed colleagues the ammunition to pull the trigger on an interest rate rise next month, and they aren't likely to hold back," said Dennis de Jong, managing director at UFX.com.
"The U.S. economy remains in a healthy state and, although there are economic threats around the world, the time is right for a first rate hike in nine years," said De Jong, who is based in Limassol, Cyprus.
In midmorning trading, the dollar index was up 0.4 percent at 98.204 .DXY . It rose as high 98.334, the highest since April 23.
The dollar touched two-month peaks against the yen above 125 yen, and was flat on the day at 124.73 yen JPY= .
The euro, meanwhile, was down 0.4 percent against the dollar at $1.0876 EUR= .
Against the Swiss franc the dollar hit 0.9885 franc CHF= , the highest since March 20. It last traded up 0.6 percent at 0.9868 franc.
Despite the increased likelihood of September rate increase, some analysts said a move by the Fed next month was by no means a done deal.
"Any Fed tightening cycle when it does occur is likely to be very modest. Low inflation and cooling growth will create powerful arguments against rate hikes," said Chris Williamson, chief economist at Markit in London.