Steady growth in hiring last month sent the stock market sharply higher Friday.
U.S. employers added 175,000 jobs in May, slightly more than the 170,000 forecast by economists, according to data provider FactSet. More Americans also began looking for work, another encouraging sign.
The report gave a boost to stock market bulls, who expect the Fed to keep up its stimulus program as the U.S. economy continues to recover moderately. That combination pushed the Dow Jones industrial average and the Standard & Poor's 500 index to record highs last month.
The Dow Jones Industrial average had its best day in five months. It rose 207 points, or 1.4 percent, to close at 15,248.12. That gain was surpassed this year only by its 2.4 percent rise Jan. 2.
The Standard & Poor's 500 index rose 20.82 points, or 1.3 percent, to 1,643.38. The Nasdaq composite rose 45.16 points, or 1.3 percent, to 3,469.22.
Federal Reserve policy makers are now all but certain to refrain from easing back on their stimulus program at the next two-day policy meeting, which starts June 18, said Phil Orlando, chief equity strategist at Federated Investors.
"This was, in our view, very much a 'Goldilocks' number," said Orlando. "There is zero chance that the Federal Reserve is going to start tapering monetary policy."
The central bank is buying $85 billion of bond every month to keep interest rates low and encourage borrowing and spending. Low interest rates also keep bond prices high and push up demand for riskier assets like stocks.
Stocks rose strongly in the morning, then eased slightly in the early afternoon. The gains accelerated in the final hour of trading.
Boeing led the index higher with a gain of $2.73, or 2.7 percent, to $102.49. Industrial conglomerate 3M gained $2.44, or 2.2 percent, to $111.11. Twenty-six of the 30 stocks in the Dow rose.
Nine of the 10 industry groups in the S&P 500 index rose, led by consumer discretionarystocks, which stand to benefit more than other sectors if the economy picks up. Industrial companies and banks also posted strong gains.
The only S&P 500 industry group that fell was telecommunications, a so-called defensive sector that investors favor when they are seeking safety and high dividends.
Stocks slumped on Tuesday and Wednesday after disappointing reports on private-sector hiring and manufacturing. The S&P 500 index lost 1.9 percent over those two days. Friday's gain erased the S&P's loss for the week. The S&P gained 0.8 percent since last Friday.
Financial markets have turned volatile over the past two weeks as traders parse comments from Fed officials for hints about when the central bank will cut back on its support. When it happens, the wind-down will help nudge interest rates higher.
For investors who expect the Fed to stay the course, "these types of slow economic growth reports speak to that," said Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management. "It keeps interest rates at record lows and it keeps the equity markets humming."
The S&P 500 index is down 1.6 percent since reaching a record high on May 21. The next day, Fed Chairman Ben Bernanke said the Fed could ease up on its economic stimulus program in one of its next few meetings.
In government bond trading, the yield on the 10-year Treasury note rose to 2.18 percent from 2.08 percent late Thursday as investors moved out of safer assets.
The Labor Department's monthly survey of employment is one of the most important gauges of the U.S. economy and receives close scrutiny from investors. It can frequently cause big moves in financial markets, especially if the report shows that employment is stronger or weaker than economists were expecting.
On May 3, the government reported not only a strong pickup in hiring in April but it also revised sharply upward its estimates for job growth in February and March. That sent the Dow Jones industrial average past 15,000 for the first time, while the S&P 500 index broke through 1,600.
In the weeks following that report, bond yields rose from 1.63 percent as high as 2.20 percent May 31. That meant investors thought the economy was strengthening, dampening the appeal of low-risk assets like bonds. It also meant investors believed the Fed would act sooner than previously thought to curtail its bond-buying program.
Investors are still keeping an eye on interest rates because of the impact that they have on the economy. For example, higher borrowing costs will push up mortgage rates and curb demand for housing. The recovery in the housing market has also boosted stock prices this year.
"Interest rates have really gone up in quite dramatically from a month ago," said Paul Hogan, the manager of the FAM Equity-Income Fund. "If they continue to rise, the market will be a little more bit choppy."
The improving economy has also helped support the dollar this year. The U.S. currency rose against the euro and the yen Friday.
The price of gold fell $32.80, or 2.3 percent, to $1,383 an ounce. Gold has fallen sharply this year as a rising stock market and a strengthening dollar have diminished its appeal as an alternative investment.
In other commodities trading, the price of oil rose $1.27, or 1.3 percent, to $96.03 a barrel.
Among other stocks making big moves:
— Gap rose $1.11, or 2.7 percent, to $42.09. The San Francisco-based clothing store chain reported late Thursday that its sales jumped 7 percent in May, more than expected, helped by strong results at its namesake Gap and Old Navy stores.
— TiVo plunged $2.61, or 19 percent, to $11.10 after the digital video recording company settled patent disputes with several technology companies including Cisco and Motorola Mobility but received far less than what most investors inspected. TiVo has posted annual losses in nearly all of the past 10 years.
— Thor Industries rose $4.92, or 11.9 percent, to $46.16 after the recreational vehicle maker reported a 6 percent increase in income. The results beat market expectations on stronger sales of RVs and a lower tax rate.