Updated from 4:11 p.m. EDT

Stocks roared to their best day in two week Friday, as relief over

Intel's

(INTC) - Get Report

midquarter update and the August employment data brought buyers back in droves.

The

Dow Jones Industrial Average

finished up 144 points, or 1.7%, at 8427. The

Nasdaq

was up 44 points, or 3.5%, at 1295 and the

S&P 500

closed up 15 points, or 1.7%, at 894.

Volume was fairly light, as it has been for most of the week, with 1.19 billion shares changing hands on the

NYSE

and 1.28 billion trading on the Nasdaq. Advancers outpaced decliners by a three-to-one margin on the Big Board and the Nasdaq.

Despite Friday's gains the Dow was still off 2.7% for the week while the Nasdaq fell 1.5%.

"This is basically a technical short-covering rally," said Michael O'Hare, a trader at Lehman Brothers. The news from Intel and the Labor Department were boosting Wall Street's spirits, however.

Intel told analysts Thursday night that its third-quarter revenue probably will come in below the midpoint of its previous guidance, citing weaker-than-expected microprocessor sales. But the forecast was better than some scenarios that had circulated on Wall Street. On the news, Lehman Brothers upgraded its recommendation on the stock to equal weight from underweight. Intel finished up 7.4% to $16.22.

"We are seeing an about-face in semiconductors because of the Intel numbers," said Phil Ruffat, a trader at Mizuho Bank. "The employment report is also contradictory to what we have been hearing."

The August employment report showed the economy adding 39,000 jobs last month and a revised 67,000 jobs in July. The unemployment rate unexpectedly fell to 5.7%, its lowest level since March, from 5.9%, in part because of a shrinking labor pool.

The broader semiconductor sector was leading the charge on Friday, with the

Philadelphia Semiconductor Index

up 4.8%. Other technology issues, including networking, wireless and software, rose as well.

Computer-related stocks

Microsoft

(MSFT) - Get Report

, up 4% to $47.82,

Dell

(DELL) - Get Report

, ahead 3.5% to $26.10, rose in sympathy.

Bond prices fell after the release of the jobs report, rubbing out gains in the Treasury market earlier in the week. The 10-year note was down 26/32, pushing its yield up to 4.02% just after 4 p.m. EDT.

While the labor report was welcome news, some experts were cautious. "While the unemployment rate surprisingly fell back, this move is unlikely to signal a significant turn in labor market conditions," said Peter Kretzmer, chief economist at Banc of America Securities, in a research note.

Some of the optimism for equities may be sapped by a rare stock market call by Pimco bond-fund manager Bill Gross. On his Web site, the nation's biggest bondholder argues that the Dow Jones Industrial Average would be fairly priced at about 5000, while the S&P 500 should be at about 650.

"Stocks can be, and often have been, poor investments," wrote Gross. "The return on them depends significantly on their beginning valuation, and right now, valuation remains poor."

Tobacco shares were under pressure after

R.J. Reynolds

(RJR)

, off 8.3%, lowered its third quarter outlook to $1.45 to $1.75 a share, compared with analysts' forecast of $2.21 a share. The company cited the costs of a second-half promotional campaign.