By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The dollar rallied across the board on Friday after data showed U.S. employment increased more than expected in July and wages picked up, raising the probability of an interest rate hike from the Federal Reserve this year.

The dollar hit one-week peaks against the euro and the Swiss franc, and turned positive versus the yen after the jobs data.

U.S. non-farm payrolls increased by 255,000 jobs last month, after an upwardly revised 292,000 surge in June. Economists polled by Reuters forecast an increase of 180,000 in July.

"Another constructive U.S. labor market report is a welcome development for Fed officials, with tentative signs of growing wage pressures particularly appealing to the hawks," said Viraj Patel, FX strategist at ING Wholesale Banking in London.

"Moreover, today's release couldn't have come at a better time for a flailing dollar, which has been under pressure since last week's soft Q2 GDP (data)," he added.

After the U.S. employment report, Fed fund futures priced in an 18 percent chance the Fed will hike rates at its policy meeting next month, from 9 percent late Thursday, according to the CME's FedWatch tool. For the December meeting, futures showed a roughly 47 percent probability of a hike, compared with about 32 percent late Wednesday.

But Brian Dolan, chief of financial education and head market strategist at DriveWealth LLC in Chatham, New Jersey, believes the "odds remain stacked" against a Fed rate hike this year, given the struggling global economic picture.

But he noted that risk sentiment will improve with the jobs data and the dollar should stabilize after recent declines.

In late trading, the dollar index <.DXY> rose 0.5 percent to 96.212, recovering from last week's poor showing when it fell 2 percent for its worst weekly performance since April.

Against the yen, the dollar rose 0.6 percent to 101.77 yen <JPY=>. The dollar posted it largest one-day gain in more than a week.

The greenback also hit a one-week high against the Swiss franc. The dollar was last at 0.9796 franc <CHF=>, up 0.6 percent.

The euro, meanwhile, slid to a one-week low against the dollar and last traded at $1.1088 <EUR=>, down 0.3 percent.

(Editing by Jeffrey Benkoe)