Updated from 4:19 p.m. EST

Stocks finished sharply higher Friday afternoon led by tech and interest-rate sensitive stocks, following the government's January employment report, as traders bet softer-than-expected payroll growth will keep the

Fed

on hold.

The

Dow

rallied 97.48 points, or 0.9%, to 10,593.03; the

Nasdaq

surged 44.45 points, or 2.2%, to 2064.01, its best day since November; and the

S&P 500

improved 14.17 points, or 1.3%, to 1142.76.

Only six of the Dow's 30 components finished lower on the day.

Despite a banner day, the Nasdaq failed to finish in positive territory this week and extended its losing streak to three straight weeks. The tech-heavy index dropped 0.1% on the week, while the Dow and S&P 500 both climbed 1%.

Volume on the

New York Stock Exchange

was 1.46 billion shares, while 1.85 billion shares exchanged hands on the Nasdaq. Advancers edged decliners by about 4 to 1 on the NYSE and by about 7 to on the Nasdaq.

The Dow's surge was carried by

Citigroup

(C) - Get Report

,

Caterpillar

(CAT) - Get Report

,

Home Depot

(HD) - Get Report

,

Intel

(INTC) - Get Report

and

AT&T

(T) - Get Report

, all of which were up at least 2% on the day.

A Goldilocks Employment Report

The Labor Department said nonfarm payrolls added 112,000 jobs in January, a sharp acceleration from the prior month's revised reading of 16,000. With economists looking for payrolls to grow by 165,000, the release was a mild disappointment.

The unemployment rate improved to 5.6% from 5.7%, slightly ahead of expectations. Many economists, however, attribute the fall in unemployment to growing numbers of discouraged workers who have dropped out of the labor force because they've been unable to find jobs.

Additionally, the average workweek increased slightly to 33.7 hours in January from the prior month's revised reading of 33.5 hours, close to expectations. Hourly earnings growth held steady at 0.1%, with economists looking for a slight acceleration to 0.2%.

However, equity investors seemed to consider the data "just right," following the release of the not-too-cold and not-too-hot figures. With investors focused mostly on payroll growth, too few jobs created would have raised concerns of waning consumer demand, while too many would raise fears of higher interest rates.

"The numbers were not strong enough so the Fed has to pull the trigger sooner rather than later," said Art Hogan, chief market analyst at Jefferies. "But it is so much better than last month and good enough to show the job market is in recovery."

Elsewhere, the reaction in the bond and foreign exchange markets were exactly as one might expect; bonds rallied and the dollar sold off.

The Treasury market which focuses almost exclusively on monetary policy and inflation also found solace in the numbers.

The 10-year Treasury note was up 22/32, yielding 4.08%, after the employment statistics reassured bond investors that interest rates will remain low for the foreseeable future.

Meanwhile, the dollar was weaker vs. both the euro and the Japanese yen. The European single currency was recently worth $1.2701, while the dollar was fetching 105.47 yen. However, currency traders were wary of pushing the dollar much lower; the greenback may find support over the weekend. Finance ministers and central bankers from the Group of Seven nations meet in Florida today and tomorrow amid growing speculation that members will pressure the U.S. to do something about the slumping dollar. (See Thursday's

market story for further analysis.)

The news wasn't all bad, however; aside from the headline number, many economists found elements of the report to spur optimism.

"The workweek registered a solid snapback and the unemployment rate ticked lower as the household survey showed another big job gain," said David Greenlaw, U.S. economist at Morgan Stanley. "There are widespread indications of at least some underlying improvement in labor market conditions. So, we continue to expect to see an upturn in the payroll employment data relatively soon."

Foreign Markets

Markets overseas ended mostly higher. London's FTSE 100 added 0.4% at 4403 and Germany's Xetra DAX improved 0.8% at 4045. In Asia, Hong Kong's Hang Seng closed 2.1% higher at 13,310 and Japan's Nikkei was down 0.04% to 10,461 at the finish.

Movers

Shares of

Ericsson

(ERICY)

moved higher after the Swedish telecom-equipment company reported a fourth-quarter profit from a loss a year ago. Ericsson also said it believes the market has stabilized and that growth in the global mobile systems market in 2004 will be in line or above 2003's levels. Both Goldman Sachs and Fulcrum Global Partners upgraded the company after the news and the stock jumped $3.07, or 13%, at $26.77.

Interest rate-sensitive sectors rallied sharply, in anticipation low rates would continue to boost their businesses. The Amex Broker/Dealer index gained 2.4% on the day and homebuilders rallied 4.1%. In addition, the Philadelphia Semiconductor Index finished up 4.8%.

Primus Telecom

(PRTL)

shares slumped $2.97, or 26.3%, to $8.34 following the company's disappointing fourth-quarter results announced after the bell Thursday.

Shares of

Electronic Data Services

(EDS)

fell $1.39, or 6%, to $21.90 after its

weak earnings report.

In Friday research, Prudential upgraded shares of

Bed Bath & Beyond

(BBBY) - Get Report

to overweight from neutral, and UBS upgraded shares of

Monsanto

(MON)

to buy from neutral. Bed Bath & Beyond shares gained $1.27, or 3.1%, to $42.08, and Monsanto rallied $1.98, or 6.5%, to $32.29.

Looking ahead, earnings season continues next week, with approximately 25% of the S&P 500 left to report. Monday's calendar is very light, however.

In economics, wholesale inventories is the only major release scheduled for Monday and is forecasted to grow 0.3% in December, a slight deceleration from 0.5% in the month prior.