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US STOCKS-Dow hits 5-year high on jobs report

* Zynga shares slide after warning, Facebook slips

* Sprint could counterbid on PCS -sources

* Indexes up: Dow 0.4 pct, S&P 0.4 pct, Nasdaq 0.3 pct

(Updates to midday) By Rodrigo Campos

NEW YORK, Oct 5 (Reuters) - The Dow Jones industrials index climbed to its highest level in nearly 5 years on Friday, after a surprise drop in the unemployment rate pointed to continued improvement in the U.S. labor market.

The S&P 500 rose for a fifth straight day and was also on course to close near a 5-year high. The index has appreciated nearly 17 percent so far this year, and is on track for its best yearly gain since 2009, when stocks rebounded after the financial crisis.

Labor Department data showed the jobless rate dropped by 0.3 percentage point in September to 7.8 percent, its lowest since January 2009, even as Americans came back into the labor force to resume the hunt for work. A separate survey of households found a big surge in hiring.

"What this suggests at the end of the day is that demand in the United States will hold up reasonably well," said Kevin Caron, market strategist at Stifel, Nicolaus & Co in Florham Park, New Jersey. "It wasn't so strong that it upset the apple cart for those that are looking for additional easing by the central banks."

The Dow Jones industrial average

gained 58.52 points, or 0.43 percent, to 13,633.88. The Standard & Poor's 500 Index rose 5.88 points, or 0.40 percent, to 1,467.28. The Nasdaq Composite Index added 8.92 points, or 0.28 percent, to 3,158.38. Zynga

shares plummeted 17.4 percent to $2.32 after it slashed its 2012 outlook for a second time, fanning doubts about its ability to shore up its dwindling earnings. Facebook

, which derives more than a tenth of its revenue from fees paid by Zynga, saw its shares fall 1.7 percent to $21.57.

A survey of business establishments showed employers added 114,000 jobs to their payrolls last month while data for July and August was revised to show 86,000 more jobs created than previously reported.

"The household employment jumped up strongly. That's an important move. These are not government jobs. It's an impressive number," said Robbert van Batenburg, head of global research at Louis Capital Markets in New York.

"This is a strong report any way you slice it. In the financial markets, some people will question the validity of this number so close to the presidential election."

The unemployment rate is a key focus in the U.S. presidential election, and Friday's data could be a boon to President Barack Obama's reelection bid.

Sprint Nextel

is considering making a rival bid for MetroPCS Communications , which agreed Wednesday to a merger with Deutsche Telekom's T-Mobile USA, according to people familiar with the situation.

Sprint Nextel rose 3 percent to $5.25, while MetroPcs gained 1.5 percent to $12.89.

(Additional reporting by Richard Leong; Editing by Bernadette Baum)

((edward.krudy@thomsonreuters.com)(+1.646.223.6314)(Reuters

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