* Indexes up: Dow 0.4 pct, S&P 0.2 pct, Nasdaq 0.3 pct (Updates prices)
By Rodrigo Campos
NEW YORK, Dec 5 (Reuters) - Bank shares led gains Friday on Wall Street after November payrolls data came in much stronger than anticipated, raising market expectations a rate hike from the Federal Reserve may materialize sooner than previously thought.
Payrolls rose by 321,000 in November, the largest number in nearly three years and way above the 230,000 estimated, while the unemployment rate held steady at 5.8 percent, a six-year low.
Financials led the S&P 500's gains, up 1 percent, as higher interest rates would prop up earnings in the sector, while utilities, a dividend play, were among the biggest losers as Treasuries yields rose.
"This report solidifies the idea that the economy is getting stronger, and the more economic activity on Main Street, the better it will be for financials," said Adam Sarhan, chief executive of Sarhan Capital in New York.
"The economy doing well is win-win-win across the board for financials, because it means more lending, more economic activity, and with markets at highs, brokers are getting more in commission and this and that. Financials are poised to move much higher."
Not everything was rosy, however, as new orders for U.S. factory goods fell for a third straight month in October, pointing to a slowdown in manufacturing activity.
At 11:35 a.m. EST (1635 GMT) the Dow Jones industrial average rose 67.49 points, or 0.38 percent, to 17,967.59, the S&P 500 gained 4.67 points, or 0.23 percent, to 2,076.59 and the Nasdaq Composite added 16.01 points, or 0.34 percent, to 4,785.44.
The Dow hit a record high and, alongside the S&P 500, was on track for a seventh week of gains, a streak not seen in a year for both. The Nasdaq Composite is slightly lower so far this week.
The U.S. dollar strengthened across the board and short-term interest-rate futures traders were pricing in the first Fed rate hike for July 2015, slightly earlier than markets saw before the data. Primary dealers, however, were convinced last month that the Fed will raise interest rates by June.
In company news, American Eagle Outfitters shares fell 13.5 percent to $11.94 after the teen apparel retailer forecast a current-quarter profit below analysts' estimates and reported its fifth straight drop in quarterly income.
Delia*s, another teen apparel retailer, said it was liquidating assets and would file for Chapter 11 bankruptcy protection "in the very near term." Its shares tumbled 85 percent to 1.8 cents.
Advancing issues outnumbered declining ones on the NYSE by 1,675 to 1,297, for a 1.29-to-1 ratio; on the Nasdaq, 1,838 issues rose and 774 fell, for a 2.37-to-1 ratio.
The S&P 500 was posting 79 new 52-week highs and 10 new lows; the Nasdaq Composite was recording 137 new highs and 68 new lows.
Additional reporting by Ryan Vlastelica; Editing by Bernadette Baum and Nick Zieminski