(

Updated from 4:04 p.m. EDT

)

The market went to work on a rally after a feel-good

employment report

set the tone in the early going. Investors bought up stocks that had been bludgeoned earlier this week by earnings warnings and cautious analyst comments.

The

Nasdaq Composite Index rose 62.65, or 1.6%, to 4023.22, off the session high of 4054.05. Today saw the first move above the

4000 mark since June 22. Meanwhile, blue-chips took the

Dow Jones Industrial Average 154.51, or 1.5%, to 10,635.98.

The

S&P 500 sailed up 22.23, or 1.5%, to 1,478.90, while the

Russell 2000 rose 4.9, or 0.9%, to 528.22.

Today's weaker-than-expected

nonfarm payrolls report can be tagged as the market's saving grace, following a tough week of up-down action. "Investors are giving a positive reception to today's jobs data," said Tony Cecin, manager of Nasdaq trading at

U.S. Bancorp Piper Jaffray

. "It's a good launch for the day after a week where there wasn't a lot of decisive action."

"There had been some growing concerns that the

Fed was scrutinizing the economic data more closely," said Dan Ament, associate vice president and investment executive at

Dain Rauscher

in Minneapolis. "The concern is now diminishing slightly." Though Ament said the tame numbers were not exactly a surprise, they did provide a degree of relief and a feeling that the end of the tightening cycle will come sooner rather than later. "We've also built up some cash on the sidelines. The market would like to move higher," he said in reference to the upside today.

"People are fishing for a reason to do something. Give them an excuse to move up or down and they'll do it," said Adam Wagner, president of

Wagner Hermann & Herbst

in Houston. "All the numbers are exactly what we want," he said of the recent economic data.

To no one's surprise, this morning's numbers had many of the financial stocks faring well. Even the stocks that fared poorly managed to turn it around by the end of the day. The

American Stock Exchange Broker/Dealer Index

flipped around before ending the day mildly higher, up 0.6%.

Merrill Lynch

(MER)

which had weighed heavily on the index for most of the day ended down just 3/4 to 123 1/4.

Goldman Sachs

(GS) - Get Report

did an even better job of reversing its downside, ending up 1 3/4 to 94 15/16.

Merrill said it might

let go some 2,000 employees, or 3% of its total workforce, from the brokerage division.

Banks were up, with the

Philadelphia Stock Exchange/KBW Bank Index

2.6% higher.

Computer makers felt a comeback after taking heat this week due to earnings warnings from software makers such as

Computer Associates

(CA) - Get Report

and

BMC Software

(BMCS)

.

The

Philadelphia Stock Exchange Computer Box Maker Index

bounced 4.6%, powered by

IBM

(IBM) - Get Report

, which rose 3.3%, and

Hewlett-Packard

(HWP)

, up 5.6%.

Cyclicals Not En Fuego

But today's data did little to help out cyclical stocks, which have their earnings tied to the business cycle.

Alcoa

(AA) - Get Report

, which struck an intraday 52-week low of 27 1/4 as investors considered the impact that a slowing economy would have on big industrial names.

International Paper

(IP) - Get Report

turned around and moved up 11/16 to 31 7/16.

"If you're looking at relative earnings growth in a slow economy, they're the ones that get hit the worst," said Brian Gilmartin, portfolio manager at

Trinity Asset Management

.

But the

numbers weren't quite cool enough to convince economists or the market that the Fed is definitely done hiking interest rates, and exuberance remained measured.

The June jobs report detected the smallest gain in total payrolls in years, but that was due in large measure to the disappearance of some 200,000 temporary Census jobs. Private payrolls grew strongly. Even so, the pace of private-sector job growth has slowed, from an average of 202,000 a month last year to an average of 177,000 a month so far this year.

The unemployment rate came out in-line with expectations of 4.0% versus 4.1% in May, while average hourly earnings were also in line at a 0.4% rise versus May's 0.1% rise.

"Wage gains were a little strong and people are concerned about its impact on inflation," said Jim Benning, a trader at

BT Brokerage

.

TheStreet.com Internet Sector

index got hit today after

Deutsche Banc Alex. Brown

downgraded several dot-coms, including bellwether

Yahoo!

(YHOO)

,

Fairmarket

(FAIM)

and

Safeguard Scientifics

(SFE) - Get Report

, citing pullbacks in ad revenue and dot-com spending. Yahoo! was 4.8% quieter, while the DOT lost 18.19, or 2.2%, to 807.11.

E-business company

BroadVision

(BVSN) - Get Report

also tanked, falling 25.4%, after losing a contract with

AMR's

(AMR)

American Airlines

to

Art Technology

(ARTG)

.

Semiconductors continued their upswing, meanwhile, after

Banc of America

initiated coverage on a bunch of semiconductor companies with buy ratings, including

Applied Materials

(AMAT) - Get Report

. This is another plus for semiconductors after several brokerages came out in their defense yesterday. Salomon Smith Barney's bearish comments left the sector all beat up Wednesday. The

Philadelphia Stock Exchange Semiconductor Index

climbed 3.7%.

A Miss Is as Good as a Mile

So how long will today's data keep the good times rolling on Wall Street? According to some insiders, it will be all about earnings come Monday. "Right now, we are seeing optimism that the Fed won't be raising rates," said Peter Boockvar, equity strategist at

Miller Tabak

. "But Monday, we'll be turning our attention to earnings."

On the earnings-warning front, contact lens maker

Ocular Sciences

(OCLR) - Get Report

fell slipped 5/16 to 12 after it warned it sees second-quarter earnings below estimates, saying a takeover battle disrupted operations.

Airborne Freight

(ABF)

also announced expectations of an earnings-estimates miss. The company said its second-quarter earnings would be between 20 cents and 30 cents a share, below the 13-analyst estimate of 44 cents.

Meanwhile,

PepsiCo

(PEP) - Get Report

lost 3.3% after

Salomon Smith Barney

downgraded the stock to outperform from buy saying that continued expansion of revenue is unlikely. Salomon did raise its price and earnings estimates for the company, however.

On the bright side, said Adam Wagner, the worst of the warnings should be over by now. "We're pretty much through the earnings warning season. If

my companies are going to warn, they better have done it by now," he said. "I'm expecting good to great news out of them," he said.

Overall, the major proxies enjoyed a solid, if shorter, week. The Dow gained 1.8% in the latest week, while the Nasdaq Composite rose 1.4%. The S&P 500 sailed up 1.7%, while the Russell 2000 tacked on 2.1%. The DOT was a notable exception, sliding 4.1%.

The

American Stock Exchange Composite Index

added 0.1%. the

Dow Jones Transportation Average

popped 5.3% and the

Dow Jones Utility Average

rose 3.7%.

Market Internals

Breadth was positive on decent volume.

New York Stock Exchange: 1,807 advancers, 1,086 decliners, 933 million shares. 78 new 52-week highs, 35 new lows.

Nasdaq Stock Market: 2,085 advancers, 1,831 decliners, 1.44 billion shares. 84 new highs, 70 new lows.

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Most Active Stocks

NYSE Most Actives

  • Motorola (MOT) : 15.6 million shares.
  • Compaq (CPQ) : 15.3 million shares.
  • Lucent (LU) : 15 million shares.

Nasdaq Most Actives

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Sector Watch

Biotechs performed well, with the

Nasdaq Biotechnology Index

up 2.4%.

Sectors were looking better across the board, with insurance gaining some ground. Earlier in the session,

Met Life

(MET) - Get Report

traded up to a 52-week-high of 22 1/16.

The

S&P 500 Insurance Index

rose 2%.

Retailers were snapped up, with

Home Depot

(HD) - Get Report

and

Wal-Mart

(WMT) - Get Report

among the Dow biggest movers. Home Depot added 8.1%, while Wal-Mart rose 7.6%.

"The sector really got whacked in the second quarter," said Gilmartin. "Like all sectors though, the market is differentiating from the winners and losers. Wal-Mart and Home Depot are retailers with continued good fundamentals."

The

S&P 500 Retail Index

climbed 6.2%.

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Bonds/Economy

Treasury prices are higher across the board, but the shortest-maturity issues are performing best, as traders interpret the June jobs report to mean that the Fed is unlikely to hike interest rates in August.

While most of the weakness in the June employment report was concentrated in the government sector, where some 200,000 temporary Census jobs disappeared, the 12-month average pace of private-sector job growth in June -- 191,000 -- is the lowest in more than four years.

At the

Chicago Board of Trade

, where

fed funds futures are listed, traders lately were discounting 34% odds of a 25-basis-point hike in the

fed funds rate on Aug. 22, down from 54% yesterday.

Accordingly, the shortest-maturity Treasuries, which are most directly influenced by the fed funds rate, are the best performers today. The two- and five-year Treasury yields have moved to their lowest levels since April, while longer-maturity issues are merely making up ground they lost yesterday.

The benchmark 10-year Treasury was up 7/32 to 103 16/32 to yield 6.014%.

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International

European markets managed to close out the trading session all on the upside.

London's FTSE moved higher to end up 77.90, or 1.2%, to 6497.50. Across the channel, Frankfurt's Xetra Dax finished 74.76 higher, or 1%, to 7025.85, while the Paris CAC closed up 112.00, or 1.7%, to 6565.97.

The euro was lately trading higher at $0.9469.

Following the Nasdaq's action yesterday,

Asian investors bargain hunted for shares of chip makers overnight, erasing most of the losses seen in the previous session. Still, investors in Tokyo remained cautious ahead of the weekend meeting between the

Group of Seven

finance ministers and the upcoming policy board meeting by the

Bank of Japan

on July 17.

The

Nikkei 225

index rose 115.87 points to 17,398.24,

In Tokyo currency trading, many investors were scrambling to cover their short positions and the greenback edged higher against the yen. It closed at 107.52 yen. It was recently trading at 107.83.

Hong Kong's

Hang Seng

index rose 340.37 points, or 2.1%, to 16,829.96 largely on a telecom rally.

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