* Dollar hits 13-year peak against yen of 125.860 yen
* Euro falls below $1.11
* U.S. employers added 280,000 jobs in May
* Higher wage growth hints at pickup in inflation
* Dollar index still set for weekly loss (Updates prices, adds comments)
By Sam Forgione
NEW YORK, June 5 (Reuters) - The U.S. dollar rallied to a 13-year peak against the yen and rose sharply against the euro on Friday after data showing U.S. job growth accelerated in May, bolstering the case for a Federal Reserve interest rate hike as early as September.
Nonfarm payrolls increased 280,000 last month, the largest gain since December, the Labor Department said. Economists polled by Reuters had forecast payrolls rising 225,000.
After the release of the data, interest rate futures traders bet on a rate hike in October. A Reuters survey Friday, however, showed Wall Street's top banks expect the Fed to begin raising interest rates in September, followed by another before the end of the year.
"If (U.S. economic) growth looks okay, there will be enough evidence by September that the Fed wants to raise rates by then," said Jens Nordvig, global head of currency strategy at Nomura in New York, on the U.S. jobs data. He said the euro would hit $1.05 by September.
The dollar rose more than 1 percent against the euro, yen, and Swiss franc. The greenback hit 125.860 yen, its highest level in roughly 13 years. The euro hit a session low of $1.10490.
The dollar index, which measures the greenback against a basket of six major currencies, was still on track for its first weekly loss in three after the euro posted its biggest two-day gain against the greenback in six years earlier this week.
The increased expectations for a 2015 Fed rate hike boosted the dollar since rate increases are expected to lift the greenback by driving investment flows into the United States.
"The nonfarm payroll was a big reassurance today for the dollar, and for I think the view of the U.S. economy as a whole," said Joseph Trevisani, chief market strategist at WorldWideMarkets in Woodcliff Lake, New Jersey.
The euro was last down 1.09 percent against the dollar at $1.11160 after hitting a more than two-week high of $1.13800 on Thursday. The dollar was up 0.99 percent against the yen at 125.605 yen. The dollar was last up 0.7 percent against the franc at 0.94020 franc.
The dollar index was up 0.91 percent at 96.330. (Reporting by Sam Forgione; Editing by W Simon and Tom Brown)