* U.S. nonfarm payrolls up 204,000 v 125,000 expectations
* U.S. unemployment rate rises to 7.3 percent from 7.2 percent
* Chinese economic data due on Saturday
By Luciana Lopez
NEW YORK, Nov 8 (Reuters) - Prices for U.S. Treasuries sank on Friday after a stronger-than-expected gain in U.S. jobs in October, despite a partial government shutdown, fueled speculation the Federal Reserve could pull back on its stimulus program as early as December.
Employers added 204,000 jobs to payrolls, the Labor Department said, sharply above expectations from economists in a Reuters poll for a gain of 125,000.
The department found no "discernible" impact on payrolls from the 16-day federal government shutdown last month as congressional Republicans sought to undermine President Barack Obama's healthcare law as a condition of funding the government.
"There is a false expectation the Fed won't move until March," said Doug Cote, chief market strategist, at ING U.S. Investment Management in New York.
"Inflation is getting to its target and with a better than expected read here (on the payrolls report), we could get a taper in December or January, and I don't think that was priced in," he said.
The nonfarm payrolls number is key for the Treasuries market because Fed policymakers have emphasized they will continue their economic stimulus program until they see data reflecting a stronger and more self-sustaining economy, including a healthy job market.
Stronger data, therefore, could see the Fed more ready to pare back its latest round of 'quantitative easing,' which involves buying $85 billion per month in Treasuries and mortgage-backed securities.
The timing of the Fed's withdrawal from those purchases has become a central question for global markets. While many analysts expected the Fed to taper its purchases in September, policymakers held their stance that month.
But while Friday's jobs report boasted a higher overall number, some analysts noted there was some cause for concern in the report itself, including a drop in the participation rate.
"The participation rate dropping sharply could still raise some eyebrows at the Fed," said Thomas Costerg, U.S. economist at Standard Chartered in New York.
More people dropped out of the labor force in October, pushing the participation rate to 62.8 percent, the lowest level since March 1978.
"I would also highlight the fact that earnings growth is quite subdued. So yes, the headline is stronger than expected, but some details still suggest some problems," he said.
In addition, the unemployment rate rose to 7.3 percent from September's nearly five-year low of 7.2 percent.
Even mere speculation earlier this year that the Fed was eyeing the exit door drove yields up more than 130 basis points from May to September.
Yields have eased slightly since then but are still about 100 basis points above their May levels.
Prices for the 10-year benchmark note fell 1-06/32 to yield 2.753 percent, from 2.6018 percent late on Thursday.
Prices for the 30-year bond slumped 1-28/32 to yield 3.835 percent, from 3.7066 percent late on Thursday.
Other data on Friday suggested a pick-up in the Chinese economy, the world's second largest. Better-than-expected exports data added to recent encouraging indicators in China.
In addition, Chinese inflation and economic activity figures are due on Saturday, which will give a clearer overall picture of the health of the economy just as top politicians meet to lay out their reform agenda at the Communist Party's third plenary session from Nov. 9-12.