NEW YORK (CNNMoney.com) - Stocks rallied Friday, at the end of a stellar first week of 2006 for the markets, as a mild December jobs report seemed to suggest the hot, but not too hot economic middle ground that investors like.

The Nasdaq composite (up 28.75 to 2,305.62, Charts) jumped around 1.3 percent and the S&P 500 (up 11.97 to 1,285.45, Charts) index gained close to 1 percent.

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The Dow Jones industrial average (up 77.16 to 10,959.31, Charts) added 0.7 percent.

Treasury prices fell, raising the corresponding yields. The greenback fell versus other major currencies.

For the week, the Nasdaq composite added 4.4 percent, the S&P 500 added 3 percent and the Dow gained 2.3 percent.

The major gauges started off the session on the right foot and stayed there all day, building up steam through the close.

The advance was predicated on a mix of seasonal factors -- early January is typically upbeat for stocks -- and the day's events -- namely the mild December jobs report, which added to some bets that the Federal Reserve's rate-hiking campaign will soon end.

Investors today seem to be focusing on the good aspects of the payroll report -- namely what it means for interest rates -- but they could just as easily be focusing on the negative aspects of it, such as the fact that growth slowed, said Emmanuel Weintraub, managing director of Integre Advisors.

He says the advance today and this week is not about fundamentals, but is about performance.

"I think there's new money coming into the market because it's the first week of the year," he said, "and there's been a rally for a few days now and so people are chasing it because they are afraid they're going to miss it."

The Nasdaq has gained each day of this holiday shortened trading week -- all financial markets were closed Monday in observance of the New Year's Day holiday. The other major gauges rose for three out of four days, and were flat on Thursday.

Employers added 108,000 to their payrolls in December, the Labor Department said, well below forecasts for a gain of 200,000. However, the November reading was revised up to 308,000 from an initially reported 215,000.

The unemployment rate, generated by a separate survey, fell to 4.9 percent from 5 percent in November, versus forecasts for no change.

Overall, the report was positive and served to "further the labor market recovery story," said Michael Darda, chief economist at MKM Partners.

The stock market reaction Friday would suggest an interpretation that the economy continues to thrive enough to create jobs, but not at a pace fast enough to require many more rate hikes. Investors also interpreted the minutes from the last Fed meeting -- released earlier this week -- to indicate a probable end to rate hikes.

However, Darda said that the outlook for interest rates really hasn't changed as a result of this week's numbers, based on the response in the bond and currency markets -- not to mention the Fed fund futures.

The bond market Friday may have been reacting to the bigger-than-expected rise in average hourly wages, Darda said, which is essentially the job report's inflation component.

Treasury prices inched lower, raising the yield on the 10-year note to 4.37 percent from around 4.35 percent late Thursday. Treasury bond yields and prices move in opposite directions.

In currency markets, the dollar fell versus the euro and the yen.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by over three to one on volume of roughly 1.76 billion shares. On the Nasdaq, advancers topped decliners by nearly two to one on volume of 2.28 billion shares.

Gains were broad based with a slew of sectors participating.

The Internet, semiconductor, software, networking and telecom indexes all gained at least two percent.

Among stocks moving on specific news, Google (up $14.42 to $465.66, Research) and Yahoo! (up $1.68 to $43.21, Research) rallied in response to bullish Goldman Sachs comments. Goldman boosted its 2005 earnings estimate on Google and its 2006 and 2007 estimates on Yahoo!.

Dow component IBM (up $2.45 to $84.95, Research) rose nearly 3 percent after saying that it would be freezing its U.S. pension plan, starting in 2008.

It was one of many blue-chip gainers. Fellow Dow stocks Caterpillar (up $1.18 to $60.45, Research), Hewlett-Packard (up $0.84 to $30.24, Research), Honeywell (up $0.58 to $37.87, Research) and General Motors (up $0.28 to $20.80, Research) also posted strong gains.

Component Microsoft (down $0.08 to $26.91, Research) slipped after Credit Suisse First Boston downgraded the stock to "neutral" from "outperform," saying other software stocks have better growth potential.

In addition, Boeing (down $0.98 to $69.35, Research) continued to slide following a brokerage downgrade Thursday.

Shares of Martha Stewart Living Omnimedia (up $0.60 to $18.38, Research) gained even after an appeals court upheld founder Martha Stewart's conviction for lying about a stock sale.

In addition, a number of retailers continued to report December sales, including Best Buy (up $3.55 to $47.05, Research). The electronics chain reported stronger than expected sales in the month, and said that fourth-quarter earnings would be near the high end of its previous forecast.

Rival Circuit City (up $0.15 to $22.94, Research) also reported strong December sales, sending its shares moderately higher.

Investors seemed to take the jump in oil prices in stride. U.S. light crude oil for February delivery gained $1.42 to settle at $64.21 a barrel on the New York Mercantile Exchange.

That was good news for oil stocks, which shot up, as evidenced by gains for the Amex Oil (up 22.21 to 1,051.53, Charts) index.

Gold prices continued to surge. COMEX gold for February delivery rallied $13.40 to settle at $541.20 an ounce.