By Dan Strumpf and Saumya Vaishampayan

U.S. stocks declined and bond yields fell Friday, despite a stronger-than-expected U.S. jobs report that signaled continued health in the U.S. economy.

Many traders focused on an unexpectedly weak reading on wage growth, which investors said suggested the U.S. Federal Reserve will remain patient with any rate increases amid an already-low inflation environment.

The Dow Jones Industrial Average fell 127 points, or 0.7%, to 17780 in early trading, while the S&P 500 declined 14 points, or 0.7%, to 2048. The Nasdaq Composite Index gave up 27 points, or 0.6%, to 4708.

The yield on the benchmark 10-year Treasury note eased to 1.998% Friday compared with 2.016% Thursday. Bond yields fall as prices rise.

The Labor Department said the U.S. added 252,000 jobs in December. Economists surveyed by The Wall Street Journal expected a gain of 240,000 nonfarm payrolls. The unemployment rate fell to 5.6%, its lowest level since June 2008.

There were no signs of wage inflation. Average hourly earnings fell from the prior month and were up just 1.7% from a year earlier.

Some traders attributed Friday’s declines to taking of profits following this week’s sharp two-session rally. Friday’s report wasn’t enough to change investors’ timeline for when the Fed will raise rates, said Brian Fenske, head of sales trading at brokerage ITG.

We’ve had a very sharp rally in the last few days, Mr. Fenske said. You just got a big economic data point that the market is still digesting. People are still pretty comfortable with their forecast for when the Fed will raise rates.

Investors were focused on what the report means for the timing of any interest-rate increase by the Fed, which many expect to occur this year. Any unexpected weakness in employment growth could delay the first increase, some say. Once the Fed does raise rates, investors see the Fed taking its time in tightening credit, given weak growth in Europe and Japan and the threat of deflation posed by a sharp selloff in crude-oil prices .

Fed-funds futures, used by investors and traders to place bets on central bank policy, showed such bettors see a 17% likelihood of a rate increase at the Fed’s June meeting, compared with 20% right before the jobs report. The odds were up from 3.9% a month ago.

Near-zero rates and the Fed’s extraordinary stimulus measures after the 2008 financial crisis have helped stoke a yearslong rally in stocks and bonds.

Stocks have had a bumpy start to 2015. The S&P 500 fell 2.7% in the first three sessions of the year, marking the worst start to a new year since 2008. Then, a rally in stocks carried the S&P 500 into positive territory for the year, gaining nearly 3% in the two sessions ended Thursday. Many investors believe the bull run in stocks has more room to run, as an improving economy and growing corporate profits push stocks higher.

If you think about the jobs data in isolation, that’s supportive of equities rather than not supportive, said Krishna Memani, chief investment officer at OppenheimerFunds, which manages $237 billion. But he added that stock investors are nominal investors and want higher inflation.

Earlier in Europe, declines in banking stocks helped drag the Stoxx Europe 600 down 0.6%.

The dollar strengthened slightly against the yen and the euro after the jobs report solidified currency traders’ views that the Fed is likely to proceed to raise rates while other major central banks are preparing for further easing measures.

Crude-oil futures extended their slide Friday as signs of U.S. economic growth were offset by the strength in the dollar, which can pressure oil prices by making dollar-traded oil more expensive for buyers using foreign currencies.

U.S. oil for February delivery recently fell 1.2% to $48.20 a barrel on the New York Mercantile Exchange.

Gold prices rose, as investors focused on the weak wage growth as a sign the Fed will be cautious in raising rates this year, recently gaining 0.6% to $1216.30 an ounce.

Among individual stocks, Bed Bath & Beyond Inc. reported a 5% decline in third-quarter profit. Sales fell below the Wall Street consensus. Shares declined 8.4%.

Nelson Peltz ‘s Trian Fund Management LP has launched a proxy fight against DuPont Co. to add four directors to the company’s board. DuPont shares fell 0.9%.

Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com

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