NEW YORK (CNN/Money) -
Stocks rallied Friday on bets that the strong October jobs report means the economic recovery is back on track.
Bond prices slipped on concerns that the solid payrolls report means interest rates are set to rise.
The Dow Jones industrial average (up 55.89 to 10,525.73, Charts) added 0.7 percent, closing at its highest level since September 7. The Nasdaq composite (up 16.60 to 2,077.87, Charts) rose 0.75 percent, closing at its highest point since June 30.
The Standard & Poor's 500 (up 8.68 to 1,182.16, Charts) index added 0.4 percent, closing at a fresh 2-1/2 year high for the second session in a row.
For the week, the Dow gained 3.6 percent, the Nasdaq gained 3.2 percent and the S&P 500 gained 3.2 percent.
"The recent rally is being supported today by the strong economic numbers, which indicate that the economy is growing at a faster clip," said Peter Cardillo, chief market analyst at S.W. Bach & Co.
Limiting the gains in stocks Friday: a falling dollar and a rise in oil prices, as well as some caution after a strong two-session rally.
While Cardillo thinks stocks should trend higher through year-end, he said the recent leg of the rally may lose some steam in coming days and weeks.
Employers added 337,000 jobs to payrolls in October, the Labor Department reported Friday, the best gain in seven months and far above economists' average forecasts for 175,000 new jobs, according to a survey by Briefing.com.
August and September's ho-hum numbers were also upwardly revised, further evidence that the labor market may be back on track.
The unemployment rate, generated by a separate survey, rose to 5.5 percent from 5.4 percent in September as more workers looking for jobs flooded the work force. Economists had expected it to hold steady.
"It was a great report, although one month does not a trend make," said Michael Darda, chief economist at MKM Partners.
"What's more important than the headline number is the revisions to August and September," he said. "On a three-month basis, we're seeing solid job gains. That's bullish. Wages are rising, that's important for consumer spending."
Bonds and dollar slide
Treasury prices slumped on the job report. While stock investors cheered the news, bond investors read the numbers as signaling higher interest rates ahead.
The 10-year note sank 26/32 of a point in price, yielding 4.17 percent, up from 4.07 percent late Thursday. Treasury prices and yields move in opposite directions.
In currency trading, the dollar hit an all-time low versus the euro, before backing off slightly, and fell versus the yen.
COMEX gold gained $3.20 to settle at $434.30 an ounce, rising with other dollar-traded commodities.
U.S. light crude oil for December delivery rose, gaining 79 cents to settle at $49.61 a barrel on the New York Mercantile Exchange. On Thursday, crude tumbled to $48.82, a five-week low.
On the move
Stocks rallied across a number of sectors.
3M (up $0.52 to $82.40, Research) jumped 4 percent and was the Dow's biggest advancer.
Other Dow gainers included Caterpillar (down $0.05 to $89.80, Research), McDonald's (up $0.13 to $30.41, Research), Hewlett-Packard (down $0.02 to $19.23, Research) and Intel (up $0.25 to $23.42, Research).
nVidia (down $0.07 to $18.00, Research) shares popped after the graphic design chipmaker reported third-quarter sales and earnings that rose from a year ago and topped estimates. The company cited cost cutting and strong sales for its solid quarter.
Sears Roebuck (up $0.49 to $46.04, Research) jumped 26 percent after Vornado Realty Trust (up $0.86 to $70.86, Research) said it had bought a 4.3 percent stake in the retailer over the summer. Vornado is a REIT that operates shopping malls.
Among other movers, Merck (up $0.30 to $26.45, Research) slipped 2.7 percent. The drugmaker -- which pulled its arthritis treatment Vioxx off the market in September -- is about to become the target of hundreds of lawsuits, according to reports.
Yahoo! (down $0.06 to $37.73, Research) and Google (down $3.06 to $179.96, Research) both fell after brokerage UBS began coverage of the Internet search engines.
UBS started Yahoo! with a "neutral" rating and a $37 dollar price tag, which is nearly where the stock closed Thursday.
Google, which has had a tremendous run up since its August IPO, was started with a "reduce" rating and a $160 price target. Google shares closed at $184.60 Thursday.
Market breadth was mixed. On the New York Stock Exchange, decliners and advancers were roughly even on volume of 1.72 billion shares. On the Nasdaq, winners beat losers three to two on volume of 1.91 billion shares.
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