NEW YORK — Investors finally got some good news on unemployment.
Major stock indexes jumped more than 1 percent Friday after the government's July jobs report showed employers cut fewer jobs last month and the unemployment rate unexpectedly dipped.
The Dow Jones industrial average rose 125 points following the Labor Department's announcement that companies shed 247,000 jobs in July, the fewest in a year. Economists had expected 320,000 lost jobs.
The report is often the most anticipated piece of economic news each month on Wall Street so the surprise figures provided a strong propellent for stocks. Still, analysts said the latest reading didn't tell investors anything really new; it did let them know they've been justified in sending stocks sharply higher during the past month.
Investors have been betting that the economy is slowly digging out of the recession. Unemployment might take a long time to recover but it would be hard, if not impossible, for the economy to strengthen if it was getting worse.
Instead, the unemployment rate dropped to 9.4 percent from 9.5 percent in June. Economists forecast the rate would rise to 9.6 percent.
"It's a pretty good jobs number, (and) certainly trending in the right direction," said James Shelton, chief investment office at Kanaly Trust in Houston. "It's not necessarily pointing to growth yet," he added, but it shows deterioration in the economy is lessening.
In late afternoon trading, the Dow rose 123.56, or 1.3 percent, to 9,379.82. Earlier, the blue chips moved above 9,400 for the first time since early November.
The broader Standard & Poor's 500 index gained 13.88, or 1.4 percent, to 1,010.96, while the Nasdaq composite index rose 27.43, or 1.4 percent, to 2,000.59.
About 2,400 stocks rose on the New York Stock Exchange, while about 600 fell. Volume came to a light 831.2 million shares, compared with 816.6 million traded at the same point Thursday.
Stocks pulled off their best levels after the Federal Reserve said consumers paid down credit cards and other debt in June for the fifth straight month. Americans cut their outstanding consumer debt by $10.3 billion, or 4.9 percent, to $2.5 trillion in June. The reduction was twice what analysts had expected and stirred some concerns that consumers would continue to pare their spending.
Financial and retail stocks rallied Friday along with the broader market.
Insurer American International Group Inc. posted its first quarterly profit since 2007. The insurance giant, which is now majority owned by the government, rose $4.47, or 19.8 percent, to $27.
The jump in retail stocks came a day after many posted lackluster July sales. A drop in unemployment could make consumers feel more confident about making purchases, which could help the recovery along. Their spending accounts for more than two-thirds of U.S. economic activity. Macy's Inc. rose 89 cents, or 5.9 percent, to $15.90.
Marc Harris, co-head of global research for RBC Capital Markets in New York, said the pop in stocks because of the unemployment report wasn't unexpected but that the market is likely going to have trouble holding its recent gains. The Dow surged more than 13 percent in four weeks on better-than-expected earnings reports.
"We've run very fast, very quickly," he said. "I think we're due to take a breath."
Harris is concerned because the quality stocks that kicked off the rally in mid-July, like those of chip makers, are now stalling. Shares of still-troubled companies like financials are pulling stocks higher now to catch up with the rest of the market. That means the rally could now be based on momentum in the market, not conviction about the economy.
There has been good news this week to support the market and the bouts of selling have been modest. On Monday, Ford Motor Co. said its monthly sales rose for the first time in nearly two years because the government's cash for clunkers program was drawing customers. That, and good news about manufacturing, construction and banking, sent the S&P 500 index over 1,000 for the first time in nine months.
Analysts say some of the market's recent gains are tied to short-covering, in which investors have to buy stock after having earlier sold borrowed shares in a bet they would fall.
On other days, selling has been contained because investors don't want to miss a rally that has surprised many traders with its strength. The S&P 500 index is up 47 percent since hitting a 12-year low on March 9.
On Wednesday, the Dow fell only 39 points but it was still the biggest drop in a month.
Investors will be looking for more insight into the economy when the Fed's interest-rate committee concludes a two-day meeting on Wednesday. It is unclear when policymakers will decide the economy is strong enough to handle rate hikes that will be needed to keep inflation in check.
Meanwhile, bond prices fell as the jobs reading limited demand for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.86 percent from 3.76 percent late Thursday.
Light, sweet crude fell $1.01 to settle $70.93 a barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller companies rose 15.48, or 2.8 percent, to 573.10.
The dollar mostly rose against other major currencies, while gold prices advanced.
Overseas markets also rallied on the U.S. jobs report. Britain's FTSE 100 rose 0.9 percent, Germany's DAX index gained 1.7 percent, and France's CAC-40 rose 1.3 percent. Earlier Friday, Japan's Nikkei stock average rose 0.2 percent.