The Labor Department said 167,000 jobs were created last month and also revised up hiring for each of the two preceding months. The unemployment rate in December was 4.5 percent, unchanged from November.

Wall Street economists had forecast that only 100,000 new jobs would be created in December, so the report painted a picture of a healthier job market and potentially stronger expansion than anticipated as 2006 ended.

A private-sector report earlier in the week had implied hiring would soften in December, so financial markets reacted sharply to Friday’s higher-than-expected number.

Bond prices dropped as investors rated chances for lower interest rates anytime soon as fading, but the dollar’s value rose against other currencies on signs of US economic vigor.

Prices for bellwether 10-year US Treasury notes fell 11/32 of a point to yield 4.65 percent while 30-year bonds were off 18/32 and were yielding 4.75 percent in late trading. Bond prices and yields move inversely.

Stock prices also fell sharply, partly because of reduced hopes for lower interest rates but also because of a disappointing forecast from Motorola Inc. which cast a shadow over high-tech shares.

The Dow Jones industrial average fell 82.68 points to finish at 12,398.01, while the high-tech-laden Nasdaq composite index was down 19.18 points at 2,434.25.

A poll by Reuters of 21 primary dealers on Wall Street found 14 of them still think the next move by the Federal Reserve on interest rates will be to lower them, though the timing is uncertain given current signs of strength.

‘’The manufacturing side of the economy may be weak, but the rest of the economy is strong and that suggests that we’re probably going to see continued good economic growth in the months ahead,’’ said Gary Thayer, chief economist for A.G. Edwards and Sons Inc. in St. Louis.

Thayer added that he expected the Federal Reserve to keep US interest rates on hold ‘’for the foreseeable future.’’

Growth in US gross domestic product, the broadest gauge of total economic activity, has slowed and was at a 2 percent annual rate in the third quarter. But analysts suggested GDP may be revised up in light of healthy jobs growth.

‘’It’s certainly going to go a long way in calming fears that a housing slowdown was taking the economy apart,’’ said Jim Paulsen, chief investment officer for Wells Capital Management in Minneapolis. ‘’It’s going to lead to revisions upward, not only in fourth-quarter GDP but also first-quarter’’ gross domestic product.

‘’The economy continues to be strong. It’s remarkably strong,’’ White House economic adviser Allan Hubbard said in an interview on CNBC television.

All the new hiring since September has been in service industries while goods producers have cut jobs in each of the four months. In December, there were 178,000 more jobs added in service businesses while goods producers shed 11,000.

The department revised up November hiring to show 154,000 new jobs instead of 132,000 that it reported a month ago and it said there were 86,000 new jobs in October instead of 79,000.

Some parts of the report will trouble Fed policymakers, who have expressed concern about potential inflation. Average hourly earnings climbed 0.5 percent in December -- the largest monthly increase since a 0.6 percent jump in April -- after a 0.3 percent gain in November.

Average hourly earnings on a year-over-year seasonally adjusted basis rose 4.2 percent in both November and December.

Those were the highest gains for any 12-month period since a matching 4.2 percent in February 2001.

‘’Without a doubt, the wage picture will be regarded as threatening by Fed hawks,’’ said Pierre Ellis, senior economist with Decision Economics in New York.

In an interview, Commerce Secretary Carlos Gutierrez said it was important to consider ‘’the big picture’’ and acknowledge the benefits that higher wages provide for the economy.

‘’We’re creating jobs, giving consumers extra money to spend and that activates the economy even more. It’s a positive outcome,’’ he said.

The average workweek was unchanged at 33.9 hours but overtime ticked up to an average 4.3 hours last month from 4.2 in November.

Construction industries dropped 3,000 jobs in December, a fourth straight month in which jobs were lost in a weakened housing sector. Manufacturers cut 12,000 jobs in December, the sixth straight monthly decline.

The Labor Department said that over the course of 2006, payroll employment increased 1.8 million or an average 153,000 new jobs a month. That was down from the 2 million jobs created in each of 2004 and 2005.