Updated from 8:56 a.m. EDT

The U.S. economy continues to confound its handicappers, generating 274,000 new jobs in April, thanks to major gains in the service-producing industries. The data lifted stocks and hammered bonds, where traders reckoned that the brisk pace of growth ensures more

Federal Reserve

interest rate hikes.

The number of nonfarm jobs added was about 100,000 more than economists had expected. The unemployment rate held steady at 5.2%, while average hourly earnings rose by 0.3%, one-tenth of a percentage point above estimates.

"The economy right now is in trend growth and is exactly where we should expect to be in this part of the business cycle," said John Silvia, chief economist at Wachovia. "The report showed strong growth of nonresidential building, education and health care. This might show that we are seeing government spending picking up."

Payroll growth in the previous two months was also upwardly revised by 93,000 jobs. All told, Friday's report depicts an economy that continues to hum along, suggesting that recent fears of an extended soft patch might have been overblown.

On Tuesday, the policymaking Federal Open Market Committee said labor markets continued to chug along even as other areas were crimped by the high price of oil.

"Recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices," the panel said in a statement accompanying its eighth straight rate tightening. "Labor market conditions, however, apparently continue to improve gradually."

The FOMC meets five more times this year. Currently, its fed funds target is 3%, the highest level since October 2001.

"This latest report does not change the view of the Fed," said Steven Wieting, a Citigroup economist. "It shows that the economy is growing, which allows the Fed to achieve its goals in a careful way as it continues to tighten. We suffered a blow in March due to higher energy prices and seasonal adjustments, but today's data points out that there is no deterioration going on in the economy."

The U.S. produced 229,000 new service-related jobs in April, including 58,000 jobs in the hotel and entertainment industries. Construction companies added 47,000 jobs.

Manufacturing, the U.S. economy's laggard, shed another 6,000 jobs last month. Government payrolls rose by 18,000.

Government bond prices fell after the employment report hit. The benchmark 10-year Treasury note went from roughly unchanged in price to down 21/32, yielding 4.24%.

Stocks rose on the news, with the

Dow

recently up 44 points to 10,384 and the

Nasdaq Composite

adding 8 points to 1970.