The latest in a stellar string of productivity reports has stocks chomping at the bit this morning.

The market: Join the discussion on

TSC

Message Boards. The

Labor Department

said that productivity grew by 5% in the fourth quarter, well above the 4.2% clip expected by economists polled by

Reuters

and matching the previous quarter's revised increase. Even better, labor costs dropped by a full percentage point, confounding expectations for an increase of 0.8%. That decline goes on top of a revised 0.3% drop in the third quarter.

Stock futures and bonds both moved higher on the news. At 9:02 a.m., the

S&P 500

futures were up 13.2, more than 10 points above fair value and indicating a strong open. The bonds' gains were more modest, with the 30-year Treasury up 16/32 to 97 20/32, putting its yield at 6.303%. The 10-year note, meanwhile, was up 7 ticks to 95 23/32 and yielding 6.613%.

"It's 'To the moon, Alice!'" said Bill Meehan, chief market analyst at

Cantor Fitzgerald

. "We have the

Nasdaq 100

futures above 4000 for the first time. We've got a positive surprise, and that should be enough to get people to finally buy something other than technology stocks."

The NDX was lately up 43, sitting exactly at 4000 even.

High productivity is what allows an economy to produce more goods and services without attendant increases in cost, and we're presently experiencing the strongest series of productivity gains since the early 1960s. But having grown a whopping 5.8% last year and showing no inclination to slow dramatically anytime soon, the U.S. economy badly needs these gains to continue if inflation is to remain at bay, especially with global demand generally on the mend.

The unexpected drop in unit labor costs, then, could help assuage concerns already in the market that inflation may have bottomed. Recent increases in such inflation measures as the implicit price deflator and the

Employment Cost Index

have reinforced the general feeling on Wall Street that the

Federal Reserve

will continue to tap the brakes on growth in the near future. The latest

Reuters

poll shows more than half the primary dealers of government debt expecting the

Fed

to hike rates by at least another 50 basis points by the end of the year.

Corporate news is rather scarce this morning. The day's earnings slate culminates with

Cisco's

(CSCO) - Get Report

second-quarter report, scheduled for after the close of trading.

Meanwhile,

Yahoo!

(YHOO)

could be in for some choppy trading after the company blamed several hackers for shutting down its Web portal for more than three hours yesterday.

Later today, the

Treasury Department

will auction off $12 billion in five-year notes.

Europe was providing U.S. equities with a very favorable environment. All the major bourses were booming in early afternoon trading, paced by Frankfurt's

Xetra Dax

, up 241.46, or 3.3%, to 7537.78. The Paris

CAC

was up 129.97, or 2.1%, to 6333.55. London's

FTSE

was 169.84 higher, or 2.7%, to 6373.42.

All the demand for stocks on the Continent was boosting the euro, which was lately trading at $0.9887.

Asian markets were mixed overnight.

The

Nikkei

fell 76.55 to 19,868.88 amid news that the Tokyo metropolitan government would slap all major commercial banks with a 3.0% tax on gross operating profit for the next five years. The banking sector, naturally, was hit hardest.

The dollar maintained its strong tone, moving between 109 yen and 109.4 yen in Tokyo trading before easing in London. The greenback was lately sitting at 109.25 yen.

Hong Kong investors came back from the Lunar New Year holiday in a buying mood, sending the

Hang Seng

up 260.61, or 1.6%, to 16,228.13 in a session interrupted by a power failure. Index constituent

China Telecom

(CHL) - Get Report

soared 13.2%, still riding a wave of enthusiasm over its inclusion in

Morgan Stanley Capital International's

China Free Index

and last week's merger of

Vodafone AirTouch

(VOD) - Get Report

and

Mannesmann

(MNNSY)

.

Korea's

Kospi

fell 11.91, or 1.2%, to 961.22, while Singapore's

Straits Times

index slipped 13.11 to 2245.80.

For a look at stocks in the preopen news, see Stocks to Watch, published separately.