By
msnbc.com
updated 3/7/2005 8:05:11 AM ET 2005-03-07T13:05:11

A surprisingly strong report on U.S. job creation ignited a robust rally on Wall Street Friday, lifting major stock indexes to their highest closing levels in nearly four years.

Major Market Indices

Wall Street was elated following the release of the February employment report, which showed 262,000 jobs were created last month, more than the 225,000 economists expected and the best showing in four months. The data, which showed jobs were created throughout the economy from retail to manufacturing, boosted investors’ confidence about growth and corporate earnings.

“The economic numbers were better than expected, and that set the tone for the [trading] day,” said Dan McMahon, head of listed trading at CIBC World Markets. He said stocks also were boosted by a modest decline in the price of crude oil, which hit a four-month high Thursday.

Friday’s jobs report offered comfort to those on Wall Street worried about inflation and higher interest rates. The nation’s unemployment rate ticked up to 5.4 percent in February from 5.2 percent in January. And hourly earnings were surprisingly flat, which means workers’ paychecks aren’t growing and businesses may have a hard time raising prices.

“[The jobs report] is great news for stock investors,” said Mark Zandi, chief economist at Economy.com, a private research group.

The lack of growth in wages means the Federal Reserve will not feel compelled to raise interest rates at an accelerated pace, he said. “There’s not enough job growth to cause wage inflation and put pressure on company profits,” he told CNBC.

High interest rates tend to weigh on stock prices because they increase the cost of borrowing for companies.

Zandi also said that while the jobs data are good news for the average American worker, a year or so of monthly payrolls gains of over 200,000 jobs will be required to remove the slack that still exists in the U.S. labor market.

The Dow rose 107.52 points, or 1 percent, to close just shy of 11,000,  its highest level since June 12, 2001. The blue-chip index was boosted by manufacturers like DuPont, Caterpillar and 3M, and interest-rate sensitive stocks like Citigroup and J.P. Morgan Chase.

Broader indexes also rallied. The S&P 500 finished up 11.65 points, or 1 percent, closing at its best level since July 3, 2001. The technology-rich Nasdaq composite index climbed 12.21 points, or 0.6 percent.

The strong jobs report overshadowed another sharp rise in oil prices earlier this week, helping all three market indices to post gains for the week. The Dow added 1 percent, the S&P 500 rose 0.9 percent and the Nasdaq composite climbed 0.3 percent.

Some investors saw Friday’s gains as the sharp move higher that many had expected after months of uncertainty. And a fresh push toward 11,000 on the Dow could come in the next few days, they said. The Dow last topped the psychologically important 11,000 level in intra-day trading on June 13, 2001, and last closed above that level on June 7, 2001.

“I think we’re going higher from here,” David Briggs of Federated Investors told CNBC. “I think we are going to have a strong March, as we usually get a spring rally,” he said, adding that investors should consider buying small-capitalization stocks and shares of industrial companies.

The bond market welcomed the jobs report by sending most bond prices higher, with the yield on the 10-year Treasury note falling to 4.31 percent. Gold prices also moved higher, while the U.S. dollar fell against other major currencies.

In corporate news, shares of Dow component Johnson & Johnson rose 99 cents to $67.74 after the company said it will acquire Closure Medical, a maker of medical adhesives, for $370 million. Closure climbed $4.28 to $26.68.

Embattled electronic data manager ChoicePoint announced that the Securities and Exchange Commission is investigating stock sales by its top executives. The company also is dealing with the aftershocks surrounding a severe security breach that compromised thousands of customers’ private information. ChoicePoint skidded $2.63 to $37.65.

Martha Stewart Living Omnimedia slid $3.20 to $30.75 as founder Martha Stewart returned to her Bedford, N.Y., home after five months of incarceration on charges related to a stock sale. She still must serve five months of home confinement but can resume working.

High-end department store company Saks saw an 18 percent jump in fourth-quarter profits and earned 67 cents per share, matching Wall Street’s expectations. Still, Saks saw its share price fall 58 cents to $15.02.

Overseas, Japan’s Nikkei stock average rose 0.14 percent Friday. In Europe, Britain’s FTSE 100 closed up 0.43 percent, France’s CAC-40 gained 0.74 percent for the session, and Germany’s DAX index climbed 1.15 percent.

Reuters and the Associated Press contributed to this report.

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