* European and U.S. markets fall
* U.S. investors wait for Friday's jobs report
* Dollar pares gains after surge to 3-month high
* Oil down, U.S. Treasury yields up (Updates with U.S. trading, changes byline, dateline, previous dateline London)
By Sinead Carew
NEW YORK, Nov 5 (Reuters) - U.S. stocks fell on Thursday, led by declines in the materials, health and energy sectors, while the dollar pared gains after U.S. economic data and Treasury yields rose.
The U.S. had its biggest weekly rise in jobless claims in eight months, while third-quarter productivity gained after a drop in self-employment had overall hours worked falling for the first time in six years, restraining costs. urn:newsml:reuters.com:*:nL1N1301N5
A day after Federal Reserve Chair Janet Yellen referred to December as a "live possibility" for a rate hike, investors were waiting anxiously for Friday's key U.S. monthly nonfarm payrolls report to gauge if the data is strong enough to prompt a lift-off.
"It's going to be a quiet day ... as people are going to be squaring positions and getting set up," said Matthew Tuttle, chief executive of Tuttle Tactical Management in Stamford, Connecticut. "I think tomorrow's going to be where the real action is."
At 11:01 a.m. ET (1601 GMT) the Dow Jones industrial average .DJI fell 71.52 points, or 0.4 percent, to 17,796.06, the S&P 500 .SPX lost 8.86 points, or 0.42 percent, to 2,093.45 and the Nasdaq Composite .IXIC dropped 36.10 points, or 0.7 percent, to 5,106.38.
Weak commodity prices weighed on energy and materials shares, while Celegene CELG.O dragged on the healthcare sector after its revenue missed estimates.
The materials sector .SPlRCM led S&P declines with a 1.1 percent drop followed by a 0.98 percent drop for energy shares .SPNY and a 0.7 percent decline for healthcare stocks .SPXHC .
U.S. two-year Treasury yields hovered near their highest levels in 4-1/2 years on continued expectations the Fed will hike rates in December, while long-dated yields also rose on fresh corporate supply.
"Investors have adjusted their probabilities, adjusted their risk, adjusted their positions, now they're going to see what happens tomorrow," said John Briggs, Americas head of strategy at RBS (L:RBS) in Stamford, Connecticut, referring to the U.S. jobs data due on Friday. L1N13021H
The dollar .DXY was up 0.6 percent against a basket of major currencies after hitting its highest level since early August earlier in the session. The euro was up slightly against the dollar at just over $1.08 EUR= . urn:newsml:reuters.com:*:nL1N1301SN
Sterling GBP=D4 fell almost 1 percent against the dollar after Bank of England chief Mark Carney, who had previously downplayed threats to major economies from slowing growth in China and other emerging markets, sent a cautious message that pointed to UK borrowing costs remaining on hold until 2017.
Gold XUA= fell for the seventh straight session, dipping as low as $1,105.2 an ounce, its weakest since Oct. 2, as investors bet on a December U.S. rate hike.
"Price action is very bearish, but we expect to find initial support at the October low of $1,105 and the September low of $1,100," ScotiaMocatta analysts said.
Copper CMCU3 fell 1.9 percent, also hitting its lowest level since Oct. 2, weighed down as the prospect of a rate hike next month boosted the dollar.
Crude oil prices came under pressure from mounting evidence of rising supplies both in the United States, where inventories rose for a sixth straight week, and in Europe, where physical crude prices are nearing five-month lows.
U.S. crude futures fell 1.6 percent to $45.59 while Brent crude was down 0.9 percent at $48.13 O/R
In Europe the FTSEurofirst 300 index .FTEU3 of major companies was down 0.1 percent.