US jobs news sees stocks bounce back

Stocks have rebounded as investors breathed a sigh of relief at the news that the US added more jobs than expected during July, putting a halt to one of the worst sell-offs since the height of the 2008 financial crisis.

The monthly US jobs data were keenly awaited after Thursday's rout, when stocks suffered one of their worst days since the collapse of US investment bank Lehman Brothers in 2008.

In the run-up to the release, there were fears that the figures may have added to growing market fears that the world's largest economy was heading back into recession.

But their release has calmed those fears somewhat though not necessarily eased worries of the pace of the US recovery.

The US government reported that some 117,000 jobs were added in July and that the unemployment rate inched down to 9.1% from 9.2% in June. Neither of these numbers showed an economy in full bloom, but compared with a dismal job market in June and expectations of 85,000 new jobs.

Almost immediately, Wall Street futures turned around, helping ease the pressure on European markets, which have been additionally weighed down by worries over the debt situation of Italy and France,

"The headline surprise, compounded by upward revisions and an unexpected drop in the unemployment rate help to diffuse some of the severe pessimism over the outlook for the US economy that has set in over the past two weeks," said Michael Woolfolk, an analyst at Bank of New York Mellon.

In the US, the Dow Jones industrial average was trading 1.3% higher at 11,530 while the broader Standard & Poor's 500 index rose 1.2% to 1,215.

In Europe, France's CAC-40 gained 1.5% to 3,369, while UK and Germany markets retraced most of their morning losses. The FTSE 100 was down 0.7% at 5,354 and the DAX was 0.4% lower at 6,392.

The stock markets in Italy and Spain - the two countries that had become the focus of investors' debt fears in recent weeks - were among today's best performers, adding 1.9% each.

The bond market pressure on the two countries also eased through the day after briefly flirting with euro-era highs.

The yield, or interest rate, on Spanish and Italian bonds declined, but remained at levels that are deemed unsustainable in the long-term.

The yield on Italian 10-year bonds was at 6.16%, higher than the 6.05% demanded for their Spanish equivalents for the first time since May 2010.

Eurozone leaders' reluctance to increase the size of their bailout fund and quickly implement changes to its powers, such as giving it the ability to buy up government bonds, have left the currency union without a clear defence against market troubles over the summer.

While the jobs report out of the US was a welcome relief for investors, who had dumped risky assets for much of the week, concern about the health of big Western economies was set to drag on for the rest of the summer.

"Markets will remain nervous until more convincing signs of recovery emerge," said Sal Guatieri, senior economist at BMO Capital Markets.

"We still look for a near doubling in (US) GDP growth in Q3 from the 1.3% pace in Q2."

The protracted debate about raising the debt ceiling in the US and confusion about Europe's strategy to fight its worsening debt crisis have undermined confidence in policy makers' willingness and ability to finally draw a line under the financial troubles that have plagued the Western world for four years.

Earlier in Asia, Japan's Nikkei 225 stock average slid 3.7% to 9,299.88 and Hong Kong's Hang Seng dived 4.3% to 20,946.14. China's Shanghai Composite Index lost 2.2% to 2,626.42.

Japanese stocks were further weighed down by a further export-sapping appreciation in the yen despite Thursday's intervention in the markets by the Japanese government to weaken the currency.