Jan 10 (Reuters) - The dollar index jumped to a fresh two-year high after a strong U.S. jobs report for December and a rise in consumer inflation expectations suggested the Federal Reserve will remain cautious about cutting rates.

The U.S. economy added 256k jobs in December -- versus the consensus forecast of 160,000 -- and the unemployment rate unexpectedly fell to 4.1%, compared to expectations of 4.2%. The January University of Michigan consumer sentiment index largely matched expectations though 1-year inflation and 5-year inflation expectations both jumped to 3.3%.

There is no evidence the U.S. economy is overheating again despite the blowout December jobs report, Chicago Fed president Austan Goolsbee said, adding he still expects it will be appropriate to lower interest rates further.

Focus now turns to U.S. inflation readings for next week including consumer price on Wednesday.

Surging crude oil also supported the greenback with prices up 3% due on Russian supply worries linked to U.S. sanctions.

Sterling tumbled to its weakest level since November 2023 after the U.S. data, taking the brunt of the currency sell off as yields rose. Cable has moved into oversold territory though bounces are expected to be shallow ahead of Wednesday’s U.K. Dec. CPI and Nov. GDP on Thursday.

EUR/USD slumped to a 26-month low, with sentiment remaining bearish due to European growth concerns. Inflation data within the euro zone and comments by ECB Chief Economist Philip Lane next week could be the next catalysts for selling.

USD/JPY posted a multi-month high of 158.89 before slumping U.S. equities and position-squaring reversed the tide. Tokyo is on holiday Monday. Yen buyers are expected ahead of Jan. 14 comments by BOJ Deputy Governor Himino Ryozo, a hawk who may back views expressed in Friday's article about upgrading price forecasts due to wage gains and yen weakness.

Treasury yields were up 4 to 12 basis points as the curve flattened. The 2s-10s curve lost 4 basis points to +37.8bp.

The S&P 500 slid 1.3% with most sectors trading lower.

Gold was up 0.6% amid haven-related buying while China demand lifted copper 0.8% to a near one-month high.

Heading toward the close: EUR/USD -0.56%, USD/JPY +0.12%, GBP/USD -0.78%, AUD/USD -0.79%, DXY +0.47%, EUR/JPY -0.71%, GBP/JPY -0.94%, AUD/JPY -0.95%.(Editing by Burton Frierson Reporting by Robert Fullem)