updated 2/9/2004 8:05:51 AM ET 2004-02-09T13:05:51

Stocks surged Friday, as investors overcame their initial disappointment with the government’s January employment report, believing the moderate job growth would help keep interest rates stable in the near future.

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The U.S. Labor Department reported the unemployment rate fell 0.1 percent to 5.6 percent last month to its lowest level since October 2001. The economy created 112,000 new jobs in January, and while analysts and economists had been expecting a higher number, the report was enough to motivate buyers who had been dormant for more than two weeks.

“It’s a Goldilocks report — not too hot and not too cold,” said Hugh Johnson, chief investment officer at First Albany Corp. “When you have interest rates declining and stock prices rising, like we do today, you get a great return on a balanced portfolio.”

The Dow Jones industrial average surged 97.48 points, or 0.9 percent, to finish at 10,593.03, ending the week up 1.0 percent after two weeks of selling.

Broader stock indicators also finished higher. The Nasdaq composite index jumped 44.45 points, or 2.2 percent, to 2,064.01, although it fell 0.1 percent for the week due to a 52-point loss Wednesday, giving the tech-dominated index its third straight losing week.

The Standard & Poor’s 500-stock index advanced 14.17 points, or 1.3 percent, to 1,142.76 in Friday's trading session and finished the week with a gain of 1.0 percent after falling the previous week.

Although the new job figure wasn’t as high as the 150,000 to 175,000 pundits had hoped for, the economy hadn’t created as many jobs in a single month since December 2000, near the peak of the last bull market.

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“There were some solid gains in the report,” Johnson said. “You can no longer characterize the current recovery as a jobless recovery. It’s a job-creating recovery.”

Furthermore, the lower-than-expected job creation could be a boon to investors fearing an interest rate increase by the Federal Reserve, as well as those who have part of their portfolio in bonds.

However, investors should think about a move to large-cap stocks, since small- to mid-caps could suffer if the dollar continues to weaken, according to Kevin Caron, market strategist at Ryan, Beck & Co.

“With the global economy accelerating in 2004, the large-caps will be able to take full advantage of that, whereas the smaller companies don’t have the resources, especially with the weak dollar,” Caron said. “There’s still some room for positive surprises in earnings in the first and second quarters, however.”

In the meantime, strong first-quarter earnings reports added fuel to the session’s buying.

Wireless equipment maker LM Ericsson gained $3.07, or 13 percent, to $26.77 after posting a profit that exceeded expectations. Forecasts for growth in 2004 were slightly better than expected as well.

Watson Pharmaceuticals gained $1.87 to $47.87. It met Wall Street estimates with 23 percent profit growth, and had its rating boosted Friday from “neutral” to “overweight” by JP. Morgan.

General Motors Corp. added 12 cents to $48.63 despite saying it would recall 1.8 million cars to repair ignition switches that could cause a fire.

McDonald’s Inc. posted a 19 percent increase in January sales despite the mad cow disease scare. Shares were up 46 cents at $27.16.

Electronic Data Systems Corp., one of the rare decliners, fell $1.39 to $21.90 after swinging to a loss in the fourth quarter even though it managed to beat analysts’ expectations before one-time charges.

Advancing issues outnumbered decliners by more than 4 to 1 on the New York Stock Exchange, where volume came to 1.45 billion shares, compared with 1.58 billion in Thursday’s session.

The Russell 2000 index of smaller companies rose 14.46 points, or 2.5 percent, to 584.00.

Overseas, Japan’s Nikkei average closed flat. In Europe, Britain’s FTSE 100 and France’s CAC-40 both closed 0.4 percent higher, while Germany’s DAX index gained 0.8 percent for the session.

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