* European stocks hold near 3-month high,
* Euro hits fresh 7-1/2 month low
* Dollar hits highest level since March 2003 (Adds Yellen comments, close of European markets)
By Chuck Mikolajczak
NEW YORK, Dec 2 (Reuters) - The dollar extended gains on Wednesday and stocks dipped on Wall Street, as Federal Reserve Chair Janet Yellen signaled a readiness to hike interest rates and investors took in U.S. data that indicated a strengthening labor market.
Yellen said she was "looking forward" to a U.S. interest rate hike that will be seen as a testament to the economy's recovery from recession.
"There could be events I suppose, terrorism or otherwise, that could make you postpone, but I think the certainly of (a rate hike) is up over the 90 percent mark," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.
"The Fed has given investors a lot of time and a lot of direction that they plan to do this, if it is coming as a surprise to you now, you just haven't been following this."
U.S. private employers boosted hiring in November. The ADP National Employment Report showed private payrolls increased 217,000 last month while a separate report showed nonfarm productivity grew at a faster pace than previously thought in the third quarter.
The U.S. dollar index extended gains after Yellen's remarks to a high of 100.51, its highest level since March 2003.
European stocks pared gains late but managed to hold near a 3-1/2-month high and the euro hit a 7-1/2-month low in the wake of Yellen's comments and on expectations the European Central Bank will engage in more stimulus after its meeting on Thursday.
The Dow Jones industrial average fell 38.01 points, or 0.21 percent, to 17,850.34, the S&P 500 lost 7.25 points, or 0.34 percent, to 2,095.38 and the Nasdaq Composite added 8.13 points, or 0.16 percent, to 5,164.44.
MSCI's all-country world index of equity performance in 46 countries shed 0.36 percent. The pan-European FTSEurofirst edged up 0.01 percent.
Reporting by Chuck Mikolajczak; Editing by David Gregorio