(Corrects media slug to UPDATE 4 from UPDATE 1, deletes UPDATE 1 tag from headline)
* Yellen gives Congress upbeat view on march towards liftoff
* Initial jobless claims up for last week
* November job report expected on Friday
* Indexes down: Dow 0.73 pct, S&P 0.9 pct, Nasdaq 1.16 pct
By Sweta Singh
Dec 3 (Reuters) - U.S. stocks were sharply lower on Thursday as European Central Bank's minimal rate cut and extended stimulus failed to impress investors, and Federal Reserve Chair Janet Yellen's comments hardened expectations of an interest rate hike this month.
The ECB decided to extend its asset purchase program until March 2017 but it did not increase its size as expected. A cut in deposit rate was in line with expectations, with hopes of further easing being dashed.
European shares suffered their biggest fall in three months on Thursday and the euro leapt more than 2 cents, its biggest surge since March. The dollar dropped to a near one-month low against the euro.
"The (ECB) commentary clearly caught people by surprise. I think most currency traders were short the euro and long the dollar, expecting different commentary from chairman Draghi," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
The ECB move comes a day after Federal Reserve Chair Janet Yellen expressed confidence in the U.S. economy and said she was "looking forward" to a rate hike that will be seen as a testament to the economy's recovery from recession.
The Fed's next policy meeting is on Dec. 15-16.
Yellen told lawmakers on Thursday that the U.S. central bank was close to lifting its overnight interest rate from near zero. Yellen gave an upbeat view of the economy, saying "growth is likely to be sufficient over the next year or two to result in further improvement in the labor market."
"Markets are still struggling with the dichotomy between the ECB and the Fed," said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.
Data released on Thursday showed initial jobless claims for last week rose, but remained at levels consistent with a strengthening labor market. This comes ahead of Friday's employment report, which is expected to show that the U.S. economy added 200,000 jobs in November.
With the labor market showing resilience, economists say it is almost certain the Fed will raise interest rates at its next meeting.
At 13:13 a.m. ET (1813 GMT) the Dow Jones industrial average was down 129.94 points, or 0.73 percent, at 17,599.74, the S&P 500 was down 18.65 points, or 0.9 percent, at 2,060.86 and the Nasdaq Composite was down 59.58 points, or 1.16 percent, at 5,063.64.
All 10 major S&P 500 sectors were down with the health index's 1.49 percent fall leading the decliners.
Gilead Sciences shares were the biggest drag on the health index.
Zafgen shares were down 4.6 percent at $5.98 after the company said the U.S. Food and Drug Administration was putting a late-stage study testing its experimental obesity drug on complete hold.
Avago Technologies shares rose 10.2 percent to $145.76 after the company reported a better-than-expected quarterly profit.
Dyax shares rose 11.8 percent to $37.32 after the company announced early regulatory approval for its proposed acquisition by Shire Pharmaceuticals.
Declining issues outnumbered advancing ones on the NYSE by 2,208 to 823. On the Nasdaq, 1,758 issues fell and 965 advanced.
The S&P 500 index showed 9 new 52-week highs and 20 new lows, while the Nasdaq recorded 51 new highs and 50 new lows. (Reporting by Sweta Singh in Bengaluru; Editing by Don Sebastian)