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NEW YORK (CNN/Money) - A strong February jobs report boosted stocks Friday, sending the Dow and S&P 500 to their best levels in more than 3-1/2 years.

At the same time, Treasury bond prices rose, sending yields lower, as investors bet inflation would remain tame, while the dollar fell versus other major currencies. Oil prices edged higher.

The Dow Jones industrial average (up 107.52 to 10,940.55, Charts) and the broader Standard & Poor's 500 (up 11.65 to 1,222.12, Charts) index both jumped 1 percent.

The Nasdaq composite (up 12.21 to 2,070.61, Charts) rose around 0.6 percent.

All three major gauges closed higher on the week, too -- for the Dow and S&P 500, it was the fifth time in six weeks. The Nasdaq, which has generally lagged the other indexes, has nonetheless closed higher four times in the last six weeks.

For the Dow, Friday's advance put it at the highest level since June 12, 2001. The rise on the S&P 500 put it at its highest point since July 3, 2001.

"As the major indexes move near four-year highs, there are some risks for stocks," said Ben Halliburton, chief investment officer and founder at Tradition Capital Management. "But the economy is growing at a solid pace, as the payrolls number showed, bond yields remain low and there is still excess of capital out there, looking for good returns."

"I think the environment should continue to benefit equities," he added.

Next week is a light one in terms of economic news and earnings. Reports include wholesale inventories, the Treasury Budget, the Trade Balance, and the Fed's Beige Book survey of the economy.

Investors will also be watching the weekly oil inventories report and any first-quarter earnings pre-announcements from corporations.

Stocks started the week on a low note, with investors taking profits off the previous session's advance and worrying about inflationary signals in manufacturing reports -- and as crude oil prices soared.

But comments from Federal Reserve Chairman Alan Greenspan and subsequent strong, but not too strong economic news -- including Friday's payrolls report -- seemed to cool worries that the economy might be growing fast enough to force the Fed into more aggressive interest rate hikes. Over the long term, higher rates are tough on the economy, corporate profits and stock prices.

Employers added 262,000 to payrolls in February, after a downwardly revised 132,000 gain in January, the Labor Department reported Friday. Economists had forecast 225,000 new jobs on average, according to a survey by Briefing.com. But privately, some economists had been looking for a number above the consensus.

"It was a good solid number, maybe not as high as some people were hoping, and not as bad as bonds had feared," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.

The unemployment rate, generated by a separate survey, rose to 5.4 percent from 5.2 percent in January. Economists thought it would hold steady.

The overall report seemed to suggest that the economy is growing solidly, but inflation is not out of hand -- the not-too-cold, not-too-hot recipe that most investors savor.

"It's really suggesting the best of both worlds for the stock market," Shapiro added. "What's not to like?"

Bond prices rose, lowering the 10-year note yield to 4.31 percent from 4.38 percent late Thursday. Bond prices and yields move in opposite directions.

Rate-sensitive stocks and sectors were among the session's big winners.

The financial sector was stronger, sending the Amex Securities Broker/Dealer (down $0.58 to $59.40, Research) index up nearly 2 percent.

Home builders also gained, pushing the Dow Jones Home Construction (up $36.52 to $931.49, Research) index up 4 percent.

The Dow's biggest winners were Caterpillar (up $2.22 to $99.96, Research), DuPont (up $1.45 to $54.55, Research), Alcoa (up $0.52 to $31.80, Research) and 3M (up $1.56 to $86.46, Research) -- all very sensitive to economic growth and rates. But gains were broad, with 26 out of 30 Dow issues rising.

In corporate news, Dell (up $0.87 to $40.87, Research) announced it was boosting its share buyback program. The personal computer maker said late Thursday that it was adding $10 billion to its shares repurchase program.

Dell rose more than 2 percent. Other big cap techs lifting the Nasdaq included Oracle (up $0.19 to $13.28, Research), Cisco Systems (up $0.24 to $18.04, Research) and Apple Computer (up $1.02 to $42.81, Research).

The biotech sector was weaker on the latest troubles for Biogen Idec (down $1.80 to $37.53, Research) and Elan (down $0.94 to $5.71, Research). The drug developers were under pressure after a second patient who took the companies' multiple sclerosis drug Tysabri was confirmed to have contracted a rare and often fatal infection.

Delphi said it will restate results for 1999 through 2004 after finding accounting errors. The auto parts maker, spun off from General Motors, also said its chief financial officer resigned after an audit committee said they had lost confidence in his ability to lead.

Delphi (down $0.91 to $5.46, Research) stock fell more than 14 percent and was among the New York Stock Exchange's most-actively traded issues.

Among other movers, Sonus Networks (down $1.01 to $4.50, Research) plunged more than 18 percent after saying late Thursday it was delaying the release of its fourth-quarter results due to an audit. The company, which makes gear for Internet phone service, also known as VoIP, also warned that fourth-quarter sales will miss current estimates.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by more than three to one on volume of 1.73 billion shares. On the Nasdaq, advancers topped decliners by more than nine to seven on volume of 1.82 billion shares.

Investors took in stride the morning's other economic news, including reads on consumer sentiment and factory orders.

Factory orders rose 0.2 percent in January after rising a revised 0.5 percent in December. Economists thought orders in the month would be unchanged.

The University of Michigan's consumer sentiment index slipped to 94.1 in February from an earlier read of 94.2. Economists thought it would rise to 94.3.

U.S. light crude for April delivery rose 21 cents to settle at $53.78 a barrel on the New York Mercantile Exchange, after having spent the morning in negative territory.

In currency trading, the dollar tumbled versus the euro and yen.

COMEX gold rose $4.30 to settle at $435.10 an ounce, rallying with other dollar-traded commodities after several days of selling.