Double Barrel Rally for Stocks

Updated from 4:03 p.m. EST

Stocks closed sharply higher for the day and the week Friday, after a government report showed that the economy created fewer jobs than expected in January, which eased concerns about the Federal Reserve's approach to raising interest rates. A rally in tobacco shares, led by Dow component Altria(MO Quote) gave the market an additional boost.

The Dow Jones Industrial Average added 123.03 points, or 1.1%, to 10,716.13; the S&P 500 rose 13.14 points, or 1.1%, to 1203.03, while the Nasdaq gained 29.02 points, or 1.4%, to 2086.66. The major indices posted their best single-session point gains since Dec. 1.

"There were a lot of favorable things today," said Larry Wachtel, senior market analyst with Wachovia Securities. "The interesting part is the Goldilocks scenario today, with everything rallying at the end with no fear of the Fed. The economy is growing, but not a breakneck pace. There was a favorable ruling for the tobacco stocks today. There's funds flowing in with mutual fund buying. The semiconductors were upgraded. All those things entered the fray today. The cup now looks half full."

All the major indices easily registered their second straight up week and have now erased a good part of their early losses in 2005. For the week, the Dow added about 2.8%, the S&P 500 gained 2.7%, and the Nasdaq rose 2.5%. The Dow has gained ground in five of the eight sessions since hitting a 2005 low of 10,368.81 on Jan. 24 and is now just 67 points below its 2004 closing level.

Volume on the New York Stock Exchange was 1.65 billion shares, somewhat light compared with recent standards, with advancers beating decliners by a ratio of 3 to 1. Volume on the Nasdaq reached 1.93 billion shares, with advancers beating decliners 2 to 1.

In other markets, the 10-year Treasury note rallied after the jobs data, adding 22/32 in price to yield 4.08%. The benchmark note last closed below that level in mid-December. The dollar turned lower against the yen and the euro. Oil prices closed slightly lower, with March crude down 3 cents to $46.43 a barrel.

Nonfarm payrolls rose by 146,000, rather than the 200,000 consensus estimate. The jobless rate, however, fell to 5.2% from 5.4% in December. The report is the first major economic update since the Fed boosted official interest rates by a quarter-point on Wednesday, its sixth consecutive tightening.

The weakness in the labor market raised new questions about the economy's overall strength, following weaker-than-expected GDP data for the fourth quarter, but tempered recent concerns about the central bank becoming more aggressive in raising interest rates.

"First people didn't like the numbers, but now they've changed their mind," said Edgar Peters, chief investment officer with Pan Agora. "The real turnaround today wasn't the jobs information but an awareness that the fundamentals have all been good, which the market has been ignoring."

At a London conference, Federal Reserve Chairman Alan Greenspan said that market pressures were stabilizing and that the weak dollar would decrease the U.S. current-account deficit. Greenspan said there is growing support to cut the federal budget deficit, which would reduce pressure on the U.S. to attract investment from abroad.

"I have argued elsewhere that the U.S. current account deficit cannot widen forever but that, fortunately, the increased flexibility of the American economy will likely facilitate any adjustment without significant consequences to aggregate economic activity," said Greenspan. "That argument will be tested, I suspect, by possibly new twists and turns that will emerge in a seemingly ever-more complex international economic and financial structure."

In another report, the University of Michigan's final reading on consumer sentiment in January came in at 95.5 vs. 95.8 earlier in the month. Economists had expected the index to reach 96.2.

Tobacco shares helped the spike in the Dow after an appeals court in Washington reportedly said U.S. law doesn't support a huge profit surrender in the government's $280 billion racketeering case. Altria rose $3.26, or 5.1%, to $67, Loews(LTR Quote) gained $1.80, or 2.6%, to $70.80, and British American(BTI Quote) added 75 cents, or 2.1%, to $36.15.

Time Warner(TWX Quote) reported a 76% increase in earnings. Fourth-quarter profit was $1.13 billion, or 24 cents a share, including a gain of 4 cents a share. Analysts had been forecasting earnings of 16 cents a share before the gain. Revenue rose 2% to $11.1 billion. Time Warner earned $639 million, or 9 cents a share, a year ago. Shares dipped 12 cents, or 0.7%, to $18.04.