FINANCIAL MARKETS : Jump in May Jobs Stirs Wall Street : Market Overview

* Treasuries surged after an unexpected jump in May employment that was seen as giving the Federal Reserve more leeway to raise interest rates.

* The employment report also sent the dollar soaring against leading European currencies.

* Blue chips edged up a fraction while the broader market fell as investors absorbed the employment report.

Credit

Long- and intermediate-range maturities initially rose sharply in reaction to the report, but they recovered some of their losses by day’s end.

Participants said the report may have cleared the way for the central bank to react to any inflationary signals in May producer and consumer price data due out over the next two weeks.

Yield on the Treasury’s 30-year benchmark bond soared to 6.91% from Thursday’s 6.86% as its price, which moves in the opposite direction, ended down 21/32 point, or $6.56 per $1,000 in face value.

Economists said the bond market was jolted by the breadth of improvement in the government’s employment statistics.

The Labor Department reported that non-farm payroll jobs increased by 209,000 in May, far exceeding the 150,000 rise that many economists were looking for.

In addition, the government revised upward its earlier survey of business payrolls to an increase of 216,000 jobs in April. It marked the first time since before the start of the 1990-91 recession that payrolls have gone up by more than 200,000 in two consecutive months.

The government also said the nation’s unemployment rate declined slightly to 6.9% in May on a surge in construction jobs. Expectations were for unemployment to stay at 7%.

“It was the magnitude of the combination,” said Joseph Liro, chief economist at S.G. Warburg & Co. “To put these numbers in context, it looks like job growth is still below average for an expansion but not as low as we had thought up to (Friday) morning.”

The federal funds rate, the interest on overnight loans between banks, held at 3%, the same as late Thursday.

Currency

The dollar advanced only modestly against the Japanese yen because of lingering worries over the U.S trade deficit.

Currency traders said the dollar jumped more than a pfennig against the German mark immediately after the employment report was released. It ended in New York at 1.626 German marks, up from 1.600 marks the day before.

The dollar climbed higher as the jobs report sent interest rates on short-term U.S. Treasury securities soaring, which in turn lured more investors to dollar-denominated financial instruments and boosted demand for dollars.

“Clearly the stronger than expected jobs report gave the dollar a psychological boost going into the weekend,” said Lisa Finstrom, a currency analyst at Shearson Lehman Bros. The momentum could help the dollar rise above the 1.630-mark level next week, the upper end of its recent range, she said.

The dollar’s gains were particularly pronounced against the British pound, which lost more. In New York, the pound closed at $1.509, sharply less than late Thursday’s $1.544.

The greenback rose to 107.75 Japanese yen, more than late Thursday’s 107.25 yen.

Other Markets

The Dow average traded narrowly at slightly depressed levels for most of the session, but a burst of buying at the end of the day pushed the index into positive territory.

The Dow closed up 0.27 at 3,545.14, adding 17.71 for the week, on Big Board volume of 226.44 million shares, down from Thursday’s 285.57 million. Declining issues outnumbered advancers by about 8 to 5 on the New York Stock Exchange.

Much of the stock market’s behavior was influenced by bonds, which fell sharply in reaction to the Labor Department report that non-farm payrolls rose by 209,000 in May.

The report raised fears that the economic growth may induce the Federal Reserve to move quickly to raise interest rates at the slight hint of inflation.

But after an early flurry of selling, trading slowed.

Hugh Johnson, chief investment officer at First Albany Corp., said a second look at the jobs data probably calmed the market, noting that the Dow index staged a last-minute recovery.

For instance, wage growth is not at heated levels, analysts said. “The average hourly wage went up six-tenths of 1%,” noted David Holt of Wedbush Morgan.

Still, the data may give the Fed a warning to stay vigilant on inflation, analysts said.

Among the market highlights:

* Allstate Corp., the Sears Roebuck insurance unit that went public on Thursday, was a heavy favorite, trading more than 6.3 million shares. It fell 5/8 to 28 3/4.

* The focus on interest rates weakened bank shares. Wells Fargo fell 5 5/8 to 101, and BankAmerica lost 3/4 to 43, while First Interstate eased 1 3/8 to 56 1/4.

* SynOptics slid 12 1/4 to 106 after Salomon Bros. cut its rating to hold from buy, citing a recent price cut by the company on some of its products.

* Shares of Bally Manufacturing added 1 1/8 to 11 1/2. It received approval for a dockside casino in Biloxi, Miss.

Overseas, stocks ended lower in Tokyo, with the 225-share Nikkei average losing 193.76 points to close at 20,882.24, up 38.55 points for the week. In London, the Financial Times 100-share average was down 22.9 points to 2,829.9. German shares continued on the gentle upward trend. Frankfurt’s 30-share DAX average closed 8.23 points higher at 1,637.85.

Meanwhile, on the Comex in New York, gold for current delivery advanced $2.20 an ounce to $376.80, and silver fell 1.3 cents an ounce to $4.434.

In energy trading on the New York Mercantile Exchange, light, sweet crude oil for July delivery rose 3 cents to $19.77 a barrel.