Job growth fuels market gains

A good employment report and Intel’s strong mid-quarter update gave Wall Street a moderate advance today, with falling oil prices padding the market’s gain.

But the tech-heavy Nasdaq, buffeted by the previous session’s volatility, posted a loss for the week.

The US government’s latest payroll figures pointed to continuing strength in job creation – a key piece of the economic recovery that had been lagging coming into 2004.

With more than one million new jobs in the last three months alone, investors were assured of the economy’s ability to continue growing.

But while the latest figure, for May, was not as high as in previous months, analysts said that was not a bad sign, since faster growth could trigger faster interest rate hikes.

“This is a very Goldilocks number – not too hot or too cold. It was just what we needed,” said Chris Wolfe, global head of equities for JP Morgan Private Bank. “It lets us contend with the other issues in June with a fairly strong economy behind us.”

Those other issues include a likely interest rate hike by the Federal Reserve at the end of the month and the transition of power in Iraq on June 30, Wolfe said.

The Dow Jones industrial average gained 46.91, or 0.5%, to 10,242.82. The index had been more than 100 points higher earlier in the session.

Broader stock indicators also advanced. The Standard & Poor’s 500 index was up 5.87, or 0.5%, at 1,122.51, and the Nasdaq composite index rose 18.36, or 0.9%, to 1,978.62.

For the week, the Nasdaq lost 0.4%, while the Dow rose 0.5% and the S&P 500 was up 0.2%. It was the second straight up week for the Dow and S&P 500, while the Nasdaq had its first weekly loss after two weeks of gains.

According to the Labour Department, the economy added 248,000 jobs in May, and the unemployment rate held steady at 5.6%.

Payroll figures from March and April - already impressive – were revised upward as well.

“The upside momentum in the market has definitely returned,” said Keith Keenan, vice-president of institutional trading at Wall Street Access. “I think the market is very comfortable with the jobs figure and the state of the economy, and has already discounted a rate increase by the Fed later this month.”

With the economy on track, most analysts agree the Federal Reserve will raise interest rates by a quarter percentage point at its next meeting on June 29. A higher job figure would have raised the spectre of a half-point increase, Keenan said.

In the short term, falling oil prices also contributed to Wall Street’s good mood. The benchmark light sweet crude oil was down 73 cents at 38.55 per barrel on the New York Mercantile Exchange.

Investors were also buoyed by Dow component Intel’s mid-quarter outlook.

The technology bellwether said it expected sales for the quarter to come in between 8 billion and 8.2 billion, raising the low end of its previous estimates thanks to strong sales of flash memory chips. Intel was up 73 cents at 28.14.

Computer Associates International gained 87 cents to 27.17 after the company announced that former chairman and chief executive Sanjay Kumar, who had stayed on as chief software architect, will leave the company altogether. Computer Associates is mired in criminal investigations of its accounting practices.

Kmart Holding Corporation said it will sell as many as 24 stores to The Home Depot for up to 365 million in an attempt to shed underperforming locations. Kmart surged 7.67, or 14%, to 62.53, while Home Depot slid 15 cents to 35.33.

Advancing issues outnumbered decliners by about 5 to 2 on the New York Stock Exchange, where volume came to 1.11 billion shares, compared with 1.23 billion at the same point on Thursday.

The Russell 2000 index of smaller companies gained 5.31, or 0.9%, to 567.75.