NEW YORK Stocks jumped and bond prices tumbled Friday after the government reported strong September job growth and revised August's weak data upward.
The Labor Department's report that employers added 110,000 jobs in September near the 115,000 increase analysts had expected reassured Wall Street that the job market wasn't pulling back sharply. The data appeared to lessen the likelihood of an interest rate cut when the Federal Reserve meets Oct. 30-31, but investors were nonetheless consoled by the fact that the economy isn't in trouble.
Strength this year in the job market amid a housing downturn and tighter credit conditions has been an important pillar for the economy.
Crucially, August payrolls were changed to a gain of 89,000 versus the previous estimate of a 4,000 decline. The unemployment rate rose to 4.7 percent from 4.6 percent in August as hundreds of thousands of people came back into the labor market, looking for work.
"We're not seeing a weakening of the labor market. There's no indication that the wheels are falling off," said T.J. Marta, economic strategist at RBC Capital Markets. He contends that while the jobs number makes it less likely the Fed will cut rates at the end of the month, many on Wall Street were relieved that a widespread weakening of the economy appears less likely.
"It looks bad compared with the rip-roaring days in the housing sector but this is called normalcy."
In late morning trading, the Dow Jones industrial average rose 72.35, or 0.52 percent, to 14,046.66.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 9.82, or 0.64 percent, to 1,552.66. The advance put the S&P 500 near its record close of 1,553.08, which occurred July 19 before stocks began a broad retrenchment amid concerns about credit, housing and the overall economy.
The technology-heavy Nasdaq composite index showed bigger gains, rising 28.05, or 1.03 percent, to 2,761.62.
Likewise, the Russell 2000 index of smaller companies rose 8.06, or 0.97 percent, to 837.21.
Bond prices fell sharply as investors interpreted the jobs data as evidence against a rate cut. The yield on the 10-year Treasury note, which moves opposite its price, climbed to 4.63 percent from 4.53 percent late Thursday.
While employment appeared to be holding up, Wall Street was also forced to examine the ramifications of credit market tightness and a slumping housing market on the banking sector. Merrill Lynch & Co. warned of a loss in the third quarter, and Washington Mutual Inc. forecast sharply lower profit due to problems stemming from turmoil in the mortgage market. The warnings follow similarly weak forecasts from Citigroup Inc. and UBS AG earlier this week.
Merrill rose $1.36 to $76.14, while Washington Mutual rose 89 cents, or 2.6 percent, to $36.17. Many investors expect the financial institutions to return to more normal results in the current quarter.
The initially weak data in August was seen as one motivating factor in the Federal Reserve's decision to slash rates by a larger-than-expected half-percentage point last month. Lower interest rates pulled the dollar down sharply in recent weeks. The employment reading Friday stirred debate over the Fed's next move but didn't rule out a rate cut. As such, the dollar gave up its earlier advance against other major currencies, leaving the greenback mixed.
Meanwhile, gold prices fell and light, sweet crude fell 42 cents to $81.02 per barrel on the New York Mercantile Exchange.
Fed funds futures are pricing in one rate cut of a quarter percentage point by the end of the year signaling the Fed would likely act at either its October or December meetings.
"There is not enough ammunition for another ease in October," Marta said, pointing to decent economic readings seen in recent weeks. "Maybe the Fed really had it right because they talked about forestalling economic fallout from the financial crisis," he said of the reasoning behind last month's cut. "What we're seeing is the economic data isn't that bad it's a moderate expansion."
"It's not like the economy is going gangbusters here but the reason the Fed tightened up through mid-2006 was to slow this economy down without breaking it and I think the employment data we've seen suggest they did a pretty darn good job of that."
Investors appeared unfazed by comments from Fed Vice Chairman Donald Kohn, who said access to credit for businesses and consumers won't likely be as readily available and as inexpensive as it had been a few months ago, even if the credit markets continue their recovery from recent tightness.
In corporate news, aluminum maker and Dow component Alcoa Inc. said Thursday it expects to book charges of $845 million on the planned sale of its packaging and consumer products businesses. Alcoa, which rose $1.04, or 2.8 percent, to $38.71, also said it plans to restructure its electrical and electronic solutions segment.
Blackberry maker Research In Motion Ltd. rose $11.52, or 11.5 percent, to $112.06 after reporting its profit and revenue more than doubled in the second quarter on strong growth in its subscriber base. Results were in line with analyst expectations.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 347.8 million shares.
Overseas, European markets advanced following the U.S. jobs report. Britain's FTSE 100 gained 0.56 percent, Germany's DAX index rose 0.59 percent, while France's CAC-40 rose 0.50 percent. In Asia, Japan's Nikkei stock average closed down 0.16 percent and Hong Kong's Hang Seng index gained 3.18 percent.