Stocks Rally on Jobs Report as S&P 500 Sets Record Close

Stocks rallied on Friday, sending the S&P 500 index to a record close, as a solid employment report rekindled optimism about the outlook for economic growth and corporate profits.

The Dow Jones Industrial Average, meanwhile, traded above its record close late in the session but gave back some of those gains before the bell. The Nasdaq rose to a 6 3/4-year high.

The prospect of continued strength in the economy boosted a broad range of sectors, including technology, basic materials, health-care, industrial, financial and consumer-oriented plays.

Shares of economic bellwethers, led by Caterpillar , were the Dow's biggest advancers, along with shares of financial services companies such as credit card issuer American Express and Citigroup , the biggest U.S. bank.

The government said nonfarm payrolls rose by 110,000 last month, topping economists' expectations of a rise of 100,000, while August's payroll number was revised sharply higher to 89,000 from the initial report of a loss of 4,000 jobs.

"The employment report was fantastic in that it showed sustainable growth and should be good for not only economic growth but for corporate profit growth," said John Lynch, chief market analyst at Evergreen Investments.

The S&P 500 closed at a record high on Friday, up 14.75 at 1,557.59. The Nasdaq closed up 46.75, at 2780.32. And the Dow closed up 91.70 at 14,066.01, just 0.2% short of its all-time high.

Friday's job report sparked investor optimism regarding corporate profits and economic growth.

But the overall trend in job growth was still weak, according to Mark Zandi, chief economist at Moody's

"You've got to add up all the revisions, not just the last two months, but take those annual bench-mark revisions," said Zandi. "You add it all together its still showing a job market in total created fewer than 100,000 jobs."

The benchmark 10-year Treasury fell following the strong jobs report, sending yields higher.

Investors shrugged off an earnings warning from Merrill Lynch, which said credit market conditions would lead to a loss in the third quarter, but shares rose amid a rally in the financial sector.

Meanwhile, Research In Motion , maker of Blackberry wireless devices, reported second-quarter earnings in line with estimates and raised guidance for the third quarter after the bell Thursday.

And the U.S. Attorney's office in Brooklyn has begun examining the circumstances behind the implosion of two Bear Stearns subprime hedge funds, CNBC has learned. No subpoenas have been issued in the investigation, which is still in its early stages.

In other news, shares of Google were 0.6% higher in German trading on news Nollenberger raised its price target for the internet search giant to $650 from $575, due to strong results in its European paid-search market.

Shares of pharmaceutical company Merck rose after the company reported favorable clinical trial results for an experimental cholesterol drug.

Meanwhile, light sweet crude futures fell to $80.68 on the New York Mercantile Exchange.

European stocks also picked up following the jobs data. Asian markets ended mixed as many investors stayed sidelined in the run-up to the U.S. jobs data.

British bank Barclays abandoned its bid for ABN Amro, leaving the way clear for the Royal Bank of Scotland-led consortium to proceed with its $99.4 billion cash-and-stock offer. Following the news Barclays shares were 0.5% higher, RBS were 0.3% lower, Fortis shares gained 2.9% and Santander stock rose 0.3%.

Also on the merger and acquisition front, Goldman Sachs said it planned to bid for all shares in Simplex Investment Advisors. The takeover would value the Tokyo-based property investor it at 156.95 billion yen ($1.35 billion).

-- Wire services contributed to this report.