Updated from 9 a.m. EDT

The U.S. economy added 211,000 nonfarm jobs in March and the unemployment rate fell to 4.7%, the Labor Department said Friday. The report, which included a slight downward revision to February's payroll gain, essentially matched forecasts and did little to worsen inflation anxiety in financial markets.

Average hourly pay, a key gauge of wage inflation, rose 0.2% last month, one-tenth of a percentage point lower than forecast. The same number was revised to up 0.4% from up 0.3% for February. On average, economists had expected a payroll gain of 190,000 and for unemployment to hold steady at 4.8%.

The average workweek was 33.8 hours, matching expectations.

Stocks rose after the report. In recent trading, the

Dow Jones Industrial Average

was up 39 points, or 0.4%, to 11,255, while the

S&P 500

added 3 ponits, or 0.2%, to 1312 and the

Nasdaq Composite

gained 7 points, or 0.3%, to 2368.

Bond yields also rose, however, with the 10-year Treasury note going from 4.89% before the report to a recent quote of 4.93% -- its highest yield since June 2002. Analysts attributed the move to speculation that Japan will start raising interest rates sooner than previously believed.

The number of jobs added in February was revised to 225,000 from 243,000. From January through March, the U.S. economy added 590,000 jobs, its best quarterly performance since the last three months of 2004.

The lion's share of last month's jobs growth occurred among service-producing industries. The services sector added 202,000 jobs as a whole, with business and professional services adding 52,000 and leisure and hospitality adding 42,000. The manufacturing sector shed 5,000 jobs in March.

Friday's report follows a two-week selloff in the bond market that pushed yields up to their highest level since June 2002. Both stock and bond traders worried that too-strong a number would spur the

Federal Reserve

to extend its nearly two-year-old rate hike campaign past the next meeting on May 10.

The report's significance is heightened by the Fed's recent pledges to make future policy "data-dependent," implying that strong economic numbers will keep the tightening cycle in place. Prior to Friday, fed funds futures have priced in 100% odds that the Fed will raise rates by 25 basis points in May, taking the rate to 5.50%. But there were only 34% odds for a hike at the June meeting.

In its last public statement, the policymaking Federal Open Market Committee evinced only passing concern with wage inflation, spending most of its ink on the threat of rising commodity costs.

"As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained," the FOMC wrote on March 28.