Wall Street cheers jobs report

NEW YORK (CNNMoney.com) -- Stocks rose Friday morning and bonds slumped after a strong September jobs report reassured investors that the economy is not headed for a recession.

The Dow Jones industrial average (Charts) gained 0.5 percent around 40 minutes into the session. The broader S&P 500 (Charts) index added about 0.5 percent and hovered within 6 points of a new all-time trading high.

The tech-heavy Nasdaq composite (Charts) gained around 0.7 percent. Should it close where it stood at 10:15 a.m. ET, it would be at a fresh 2007 record and the highest close since Feb. 2001.

Employers added 110,000 jobs to their payrolls in August, just topping forecasts for a rise of 100,000. In addition, the August number was revised to a gain of 89,000 jobs from the originally reported loss of 4,000 jobs.

Despite the gain in payrolls, the unemployment rate, which is generated by a separate survey, rose to 4.7 percent in the month from 4.6 percent in the previous month. The gain was as expected.

The report seemed to hit that middle ground that stock investors crave, suggesting the economy is holding up, but not accelerating too quickly.

However, stock gains may have been limited by the realization that the report seems to diminish the likelihood of the Federal Reserve cutting interest rates at its next policy meeting at the end of the month.

The report's inflation component seemed to support the Fed holding off. Average hourly earnings rose 0.4 percent after rising 0.3 percent in August. Economists thought wages would rise 0.3 percent.

Treasury prices slumped, boosting the corresponding yields, on bets that the strong economic news means the Federal Reserve is unlikely to cut interest rates further at its next policy meeting. The selloff lifted the yield on the 10-year note to 4.60 percent from 4.51 percent late Thursday.

In corporate news, Merrill Lynch joined the recent parade of financial stocks warning about the earnings impact from the fallout in the housing and credit markets. Merrill said it will post a third-quarter net loss and will write down $5 billion.

Nonetheless, Merrill (Charts, Fortune 500) shares rose, with investors continuing to reward financial stocks for not disappointing them more with their earnings. In addition, a sense that the worst is over for the sector has helped the stocks recently.

Late Thursday, Research in Motion (Charts) reported higher quarterly earnings and revenue that beat expectations. The blackberry maker also boosted its current-quarter profit forecast. Shares jumped Friday morning.

Also after the close Thursday, Alcoa (Charts, Fortune 500) said it will sell two of its divisions and that it will restructure another one. Shares of the Dow component rose 2 percent Friday morning.

U.S. light crude for November delivery fell 58 cents to $80.86 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $3.80 to $740 an ounce.