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The stock market Friday soared to its highest closing levels since the October 1987 crash in a rally sparked by a weak May employment report that fueled investors' hopes for lower interest rates.

The Dow Jones industrial average, which rose 10.48 Thursday, jumped 27.20 to close at 2517.83. For the week, the blue-chip index gained 24.06 points.Among broader market indicators, the NYSE composite index climbed 1.86 to 181.49, and Standard & Poor's 500-stock index tacked on 3.55 to 325.52. The price of an average share gained 37 cents.

Advances overwhelmed declines 1,116-423 among the 2,003 issues crossing the NYSE tape. Big Board volume totaled 229,140,000 shares, compared with the 223,160,000 shares that changed hands Thursday.

The market rallied throughout the session after the Labor Department reported that non-farm jobs grew only 101,000 in May, which was much smaller than April's revised 206,000 and about half of that expected by most economists.

The report also said the U.S. jobless rate for May eased 0.1 percentage point from April to 5.2 percent - in line with expectations. U.S. workers earned an average of $9.61 an hour, only slightly higher than April's $9.60.

Analysts said the May employment report supported the theory that the nation's economy is cooling and the Federal Reserve Board's tight monetary policy has been helping to curb inflationary pressures.

Investors have looked for such confirmation since it heightens the possibility that the Fed will soon ease short-term interest rate levels, which would make stocks a more attractive alternative to cash investments.

"This is a rate-driven market. When interest rates decline, stocks rise," said Larry Wachtel, market analyst with Prudential-Bache Securities Inc.

Shortly after the release of the report, the Southwest Bank of St. Louis, a modest but trendsetting bank, lowered its prime lending rate to 11 percent from 11.5 percent. No major bank immediately followed the Southwest move, but analysts said it is only a matter of time.

"Right now we're just sitting and waiting," said Trude Latimer, market analyst with Josephthal & Co. Inc.

Later in the day, the Veterans Affairs Department announced it would cut its maximum home loan interest rate from 10.5 percent to 10 percent.

"This was another indication that rates are softening," Latimer said.

Analysts said investors showed broad-based buying interest through most of the session, although blue chips took the lead in the final minutes of trading after computer-driven buy programs kicked in.

Prices of futures in the stock-index futures market in Chicago expanded to wide premiums over the cash indexes, which prompted arbitragers to lock in profits by selling the futures and buying baskets of the underlying stocks.

On the trading floor, Texaco was the most active NYSE issue, rising 3/8 to 49 3/4 as Shearson Lehman Hutton Inc., Goldman Sachs & Co. and Salomon Brothers Inc. began redistributing the Texaco shares they bought Thursday. The securities firms bought 42.3 million shares from Carl Icahn at Thursday's close for a total of $2.07 billion, which marked the largest block trade in terms of dollars in the exchange's history.

USX followed, dropping 1 to 36 1/2. Traders said Icahn, who holds a sizable stake in USX, is rumored to be interested in acquiring the holding company for the nation's largest steel firm.

Another rumored Icahn interest, Williams Cos., fell 1 1/8 to 36 3/4.

Eastman Kodak was the third most active issue, climbing 3/8 to 47 1/8.

AT&T rose 5/8 to 36 1/4. IBM edged up 1/8 to 110 1/8.

Among other blue chips, Philip Morris jumped 2 1/4 to 141 1/4, Procter & Gamble tacked on 2 1/2 to 105 3/4, and Merck & Co. soared 2 1/8 to 72.

Prices closed sharply higher in active trading on the American Stock Exchange.

The Amex Market Value index rose 2.38 to a post-crash closing high of 360.47. The price of an average share gained 10 cents. Advances led declines 357-233 among the 862 issues traded. Volume swelled to 16,020,000 shares, compared with 14,270,000 shares traded Thursday.

B.A.T. Industries led the Amex issues, climbing 5/8 to 9 13/16.

The National Association of Securities Dealers composite index jumped 3.31 to close at a new post-crash high of 451.63.