Market rises on strong jobs data, reversing early drop

By Angela Moon

NEW YORK (Reuters) - U.S. stocks rose in choppy trading on Friday after robust jobs data pointed to a strengthening economy and investors overcame concerns that the Federal Reserve may begin to cut its stimulus measures as soon as September.

All three major U.S. stock indexes were on track for a solid weekly gain, with the S&P 500 up 1.5 percent for the week so far.

Trading was choppy as investors digested the strong jobs report, which showed employers added 195,000 jobs in June, exceeding expectations of 165,000. Job growth in previous months also was revised higher.

The benchmark S&P 500 index fell in early action as some investors saw the jobs data as increasing chances the Fed would cut its stimulus efforts sooner than expected. But stocks later recovered smartly on the view that the jobs growth was a positive sign for the economy, with sectors tied to the pace of growth leading the way upward.

Whether the jobs report "will stop the FOMC from the onset of its tapering process remains to be seen. However, we are trying, at the suggestion of the Federal Reserve, to ignore the latest single data point" and take a longer view about the economy, said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.

Small-cap shares and banks rallied, giving credence to the idea that investors were viewing the strong payroll figures positively.

The S&P Small Cap 600 index <.SPCY> rose more than 1 percent while the S&P 500 financial sector index <.SPSY> gained 1.4 percent.

"The jobs report this morning is a sign that the economy is growing and the private sector is hiring, and that bodes well for growth-oriented industries," said Janna Sampson, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

Bank of America Corp rose 1.5 percent to $13.01 while Citigroup Inc gained 1.4 percent to $48.32. Large banks benefit when interest rates rise because higher rates increase their net interest margin.

Interest rates rose sharply on Friday in anticipation that the Fed will start cutting its monthly $85 billion in bond buying, which was a major factor in the stock market's rally this year, as early as September.

The Dow Jones industrial average was up 137.78 points, or 0.92 percent, at 15,126.33. The Standard & Poor's 500 Index was up 14.46 points, or 0.90 percent, at 1,629.87. The Nasdaq Composite Index was up 29.95 points, or 0.87 percent, at 3,473.62.

Volume was light, with many traders still away from the office after the Fourth of July holiday. About 3.5 billion shares had changed hands on U.S. exchanges by late afternoon trade.

The S&P 500 was trading above its 50-day moving average of 1,625.70 in late afternoon trading. The last time the S&P 500 closed above its 50-day moving average - a measure of the market's medium-term trend - was on June 19. Still, the S&P 500 remained about 2.5 percent below its May 21 record closing high of 1,669.16.

Annaly Capital Management , a real estate investment trust that invests in mortgage-backed securities, slid 5.6 percent to $11.45 as the yield on the benchmark 10-year U.S. Treasury note jumped above 2.7 percent. Annaly Capital was the fourth most-traded stock on the New York Stock Exchange.

Gold tumbled 3 percent, extending earlier losses as the dollar gained strength. Newmont Mining was the S&P 500's worst performer, falling 5.7 percent to $27.37.

(Reporting by Angela Moon; Editing by Kenneth Barry)