Stocks Stage Impressive Rally

Updated from 4:19 p.m. EST

Stocks finished sharply higher Friday afternoon led by tech and interest-rate sensitive stocks, following the government's January employment report, as traders bet softer-than-expected payroll growth will keep the Fed on hold.

The Dow rallied 97.48 points, or 0.9%, to 10,593.03; the Nasdaq surged 44.45 points, or 2.2%, to 2064.01, its best day since November; and the S&P 500 improved 14.17 points, or 1.3%, to 1142.76.

Only six of the Dow's 30 components finished lower on the day.

Despite a banner day, the Nasdaq failed to finish in positive territory this week and extended its losing streak to three straight weeks. The tech-heavy index dropped 0.1% on the week, while the Dow and S&P 500 both climbed 1%.

Volume on the New York Stock Exchange was 1.46 billion shares, while 1.85 billion shares exchanged hands on the Nasdaq. Advancers edged decliners by about 4 to 1 on the NYSE and by about 7 to on the Nasdaq.

The Dow's surge was carried by Citigroup(C), Caterpillar(CAT), Home Depot(HD), Intel(INTC) and AT&T (T), all of which were up at least 2% on the day.

A Goldilocks Employment Report

The Labor Department said nonfarm payrolls added 112,000 jobs in January, a sharp acceleration from the prior month's revised reading of 16,000. With economists looking for payrolls to grow by 165,000, the release was a mild disappointment.

The unemployment rate improved to 5.6% from 5.7%, slightly ahead of expectations. Many economists, however, attribute the fall in unemployment to growing numbers of discouraged workers who have dropped out of the labor force because they've been unable to find jobs.

Additionally, the average workweek increased slightly to 33.7 hours in January from the prior month's revised reading of 33.5 hours, close to expectations. Hourly earnings growth held steady at 0.1%, with economists looking for a slight acceleration to 0.2%.

However, equity investors seemed to consider the data "just right," following the release of the not-too-cold and not-too-hot figures. With investors focused mostly on payroll growth, too few jobs created would have raised concerns of waning consumer demand, while too many would raise fears of higher interest rates.

"The numbers were not strong enough so the Fed has to pull the trigger sooner rather than later," said Art Hogan, chief market analyst at Jefferies. "But it is so much better than last month and good enough to show the job market is in recovery."

Elsewhere, the reaction in the bond and foreign exchange markets were exactly as one might expect; bonds rallied and the dollar sold off.