msnbc.com news services
updated 2/7/2005 8:01:51 AM ET 2005-02-07T13:01:51

Wall Street’s major stock indices surged Friday, chalking up their best weekly performance of the year, as investors found some reassurance in the government’s weak job growth figures, believing they would prompt the Federal Reserve to be less aggressive in raising interest rates.

Major Market Indices

The Dow Jones industrial average was up 123.03 points, or 1.2 percent, at the close of trading — it was the first triple-digit rally for the Dow in 2005 and its best one-day gain since Dec. 1. The broader Standard & Poor’s 500-stock index jumped 13.14 points, or 1.1 percent, while the Nasdaq Composite index, full of technology stocks, rallied 29.02 points, or 1.4 percent.

The Dow rose 2.8 percent for the week, while the S&P 500 added 2.7 percent and Nasdaq Composite climbed 2.5 percent. The Dow and S&P 500 are now down less than 1 percent for 2005, but the Nasdaq Composite is down 4.1 percent, as small-cap stocks and technology shares have borne the brunt of investors’ unease.

Another reason for Friday’s rally was a favorable court ruling for the tobacco industry, which came late in the session and boosted shares of cigarette makers like Dow component Altria Group and Reynolds American, the parent of R.J. Reynolds Tobacco. A U.S. appeals court rejected the government’s bid to force cigarette makers to pay billions of dollars in past profits as part of its racketeering case against the industry.

The markets opted for a glass-half-full approach to the Labor Department’s job creation report, released before Friday’s open, which showed just 146,000 new jobs last month, far less than the 200,000 expected. December’s job gains were revised downward to 133,000 from the 157,000 reported a month ago.

While such a disappointing report has driven stocks lower in the past, the numbers assuaged investors’ fears that inflation would become an issue. With the economy growing at a tepid rate, inflation is unlikely to be a factor, and the Fed Reserve’s modest stance on raising interest rates would remain unchanged.

“I certainly think this [jobs] report provides no reason for the Fed to turn more aggressive in its tightening. That’s because while it’s creating jobs, the economy is not booming and there’s not a lot of labor-cost pressure in the system,” said Richard Rippe, chief economist at Prudential Equity Group in New York.

The week’s good news — successful elections in Iraq, no surprises from the Fed on interest rates and falling oil prices — prompted much of the week’s gains and helped investors put Friday’s jobs report in perspective, analysts said. Economic growth, without inflationary pressures, could be healthier for the economy in the long-term, not to mention better for stock prices.

“It really is the sweet spot,” said Scott Wren, equity strategist for A.G. Edwards & Sons. “This economic environment is just very modest and very sustainable, with non-inflationary growth. That’s the kind of environment that’s good for stocks.”

With the bulk of a largely upbeat earnings season now over, the jobs report was the main catalyst for investors Friday. Still, there were some companies releasing earnings, including media conglomerate Time Warner Inc., which fell 12 cents to $18.04, even though it beat expectations as profits, excluding one-time items, beat Wall Street expectations by 4 cents a share.

Medical supplier Cardinal Health Inc. fell $1.91 to $58.18 after reporting its second-quarter profit sank 42 percent and its controller and other employees had left the company over an accounting probe.

Human resources firm Hewitt Associates Inc. was up $2.19 at $31.28 after reporting its first-quarter earnings rose 16 percent.

Shares of tobacco companies surged after a federal appeals court said the government could not attempt to take up to $280 billion in past profits under a racketeering law. Altria Group Inc., parent of Philip Morris USA, climbed $3.26 to $67 on the news.

Shares of Temple-Inland Inc. jumped $10.67, or 16.4 percent, to $75.75 after the lumber and paper producer said financier Carl Icahn’s fund plans to buy between $100 million and $500 million of Temple-Inland stock.

Overseas, Japan’s Nikkei stock average fell 0.25 percent. In Europe, Britain’s FTSE 100 closed up 0.68 percent, France’s CAC-40 rose 0.74 percent for the session, and Germany’s DAX index gained 1.35 percent.

Reuters and the Associated Press contributed to this report.

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