Stocks were heading to the best result for a week before Labor day since 2006 after a series of economic reports gave investors reason to think the U.S. economy is beginning to turn around.
The Dow Jones Industrial Average rose more than 100 points, adding on to gains in the last hour of the session, just off session highs.
Caterpillar , JPMorgan and AIG led the Dow higher, while McDonald's fell.
The S&P 500and the Nasdaqwere also higher. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell more than 6 percent, below 22.
Financials, technology and consumer disretionary sectors led the S&P 500.
Stocks sold off sharply during the summer over concerns the economy may be headed for a double-dip recession. But a report that showed the manufacturing sector grew more than expected in August sparked a rally on Wednesdaythat helped stocks to their best day in eight weeks. A better-than-expected report on August nonfarm payrolls on Friday gave investors reason to remain optimistic.
Investors piled into big financial stocks Friday including Goldman Sachs , which jumped more than 5 percent. Financial stocks have taken a bit hit over the summer, with the KBW Bank index tumbling almost 10 percent since the beginning of May. Other banks including JP Morgan and Wells Fargo also rose.
Strategists such as Anton Schutz, president of Mendon Capital, called the big financials “really cheap” and added in an interview on CBNC that the regionals will see a “big wave” of M&A activity in the near future.
AIG was also higher Friday after news the company is a step closer to an initial public offeringof its pan-Asian life insurer. AIG is expected to raise $15 billion.
Increased buying is evident in other cyclical names, including housing stocks such as DR Horton and Pulte Group and retailers, such as Abercrombie & Fitch and Gap , an indication investors have a little more faith in the economic outlook.
Among technology stocks, Google shares rose after a report from Reuters that the search engine giant is planning to enter the music businessand compete with rival Apple .
Hewlett-Packard shares edged higher a day after it officially beat rival Dell in the bidding war to acquire data storage company 3Par. Dell could spend the $2 billion it planned to use to buy 3Par to go after smaller technology companies, analysts said.
Analysts speculated companies such as Compellent Technologies , CommVault Systems , Isilon Systems in addition to privately-held Pillar Data Systems and DataDirect Networks as potential takeover candidates for Dell.
Take-Two Interactive soared almost 10 percent a day after the video game publisher raised its forecast for the quarterthanks to a boost in sales for its "Red Dead Redemption." Rivals Activision Blizzard and Electronic Arts were also higher.
The business of delivering games, meanwhile, has heated up as Apple focuses more on the gamingfor its iPod and iPad products, promising to provide heated competition to rivals Nintendo and Sony .
Campbell Soup led the S&P 500 lower, falling more than 3 percent after the world's largest soup company posted a lower-than-expected revenueand forecast sales growth for the new fiscal year below its long-term target. The biggest gainer in the S&P was Monster Worldwide , which rose more than 6 percent.
Mariner Energy shares recovered a day after the oil and gas platform company burst into flames while operating in shallow Gulf Coast waters. The Coast Guard said oil does not appear to be leaking from the platform.
BP said the cost of dealing with the Gulf Oil spill rose to $8 billion. The oil giant is also planning to release findings of an internal probe into the causes of the disaster. Meanwhile, oil prices slid near $74 a barrel.
Celldex Therapeutics plummeted more than 25 percent after the biotech firm said it would go ahead alone with the development of its cancer vaccine after partner Pfizer
Mattel shares abruptly plunged more than 20 percent in pre-market trading for unclear reasons before recovering an hour later. Mattel and NYSE Euronext did not immediately return requests for comment. A Nasdaq spokesman said the exchange operator was looking into the matter.
Meanwhile, Chinese officials are exploring ways to block BHP Billiton's
In other markets, the jobs news prompted some investors to leave the safety of gold as well as Treasury securities. Gold fell 0.18 percent Friday to $1,249.20, although it was up more than 1 percent for the week. The 10-year Treasury, meanwhile, fell 13/32 points this week, to yield 2.7 percent.
Commodities rallied with silver prices hitting 52-week highsand copper prices also rising.
In the day's economic news, the government reported August nonfarm payrollsfell by 54,000 jobs in August, far less than the anticipated 100,000 decline. The unemployment rate rose to 9.6 percent. Private payrolls gained 67,000 jobs, better than the 41,000 expected.
"I think traders are paying attention to the fact we are still losing jobs, and there doesn’t seem to be a clear strategy on how to create jobs," said Todd Schoenberger, managing director at LandColt Trading.
Investors may have tempered initial enthusiasm for the jobs data once they realized the figures were not good enough to signal a broad jobs recovery and weren't bad enough to prompt the Federal Reserve to act with more stimulus, Schoenberger said.
Although private sector payrolls rose far more than the 35,000 forecasted by Scott Brown, chief economist at Raymond James & Associates, the boost was "well below that 135,000 or so that we need to keep pace with the growth of the working-age population."
One encouraging sign is temp-help payrolls rose 17,000, meaning employers may be willing to hire fulltime workers in the near future. Temp-help payrolls had stalled in June and July after averaging a monthly gain of 45,000 from October to May, he said.
"It's still suggesting more of the same — positive job growth, but not especially strong," said Brown.
Meanwhile, non-manufacturing in the U.S. grew less than forecast, according to the Institute for Supply Management. The index of national services activity fell to 51.5 in August, the second lowest level for the year. The survey of services activity was expected to show a slight decline, after July's rise to 54.3.
Next week, investors will have their eye on the Federal Reserve's Beige Book, which will be released on Wednesday, for a better idea of what the Fed thinks about the labor market and overall economy.
On Tap Next Week:
MONDAY: Markets closed for Labor Day, Obama speaks on the economy, new Apple iPods ship this week.
TUESDAY: 3-year Treasury note auction.
WEDNESDAY: MBA mortgage applications, 10-year note auction, Fed Beige Book release, Fed's Kocherlakota speaks, consumer credit; Earnings from Smithfield Foods.
THURSDAY: New York Fashion Week begins, McDonald's August sales, weekly jobless claims, oil inventories, 30-year Treasury bond auction.
FRIDAY: Wholesale trade.
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