Stocks jump on better-than-expected jobs report

With unemployment still rising, investors are questioning whether stocks should be, too.

Major market indexes ended a volatile day Friday mixed after the government reported that unemployment jumped to the highest level in more than 25 years, but payrolls shrank by the smallest amount in eight months.

The Dow Jones industrial average finished up 12.89 points, or 0.1%, at 8,763.13 -- just 14 points below where it started the year. The index moved in and out of positive territory a number of times during the session, but the jump in the unemployment rate proved too tough to ignore.

“When nearly 10% of people are out of work, it’s hard for me to say things are so positive,” said Anthony Conroy, head trader at BNY ConvergEx Group.

But bond investors focused on the half-glass-full aspect of the employment report -- the slowing rate of net job losses -- and sent Treasury yields surging again. The resulting fear of higher interest rates on mortgages and other kinds of consumer and business loans may have, in turn, helped keep a lid on stock prices.

Although the Dow ended the day with a gain, broader stock indexes finished lower. The Standard & Poor’s 500 index fell 2.37 points, or 0.3%, to 940.09, and the Nasdaq composite index edged down 0.60 of a point to 1,849.42.

Declining stocks narrowly outnumbered advancers on the New York Stock Exchange.

For the week, the Dow gained 3.1%, the S&P; 500 rose 2.3% and the Nasdaq jumped 4.2%.

Since hitting a 12-year low March 9, the Dow has surged 34%, but it remains 38% below its October 2007 record high.

“The markets are feeling better even though the economy is still sick,” Conroy said.

The Labor Department said employers cut 345,000 jobs in May, far fewer than the 520,000 that economists estimated. But the unemployment rate surged to 9.4% from 8.9% in April.

The number of payroll jobs appeared too good to be true to some investors. Speculation that the government had misreported the figure sent stocks lower in midmorning trading before the Labor Department shot down the rumor.

Treasury yields rose as investors shifted more funds out of government bonds. The benchmark 10-year Treasury note jumped to 3.86%, its highest finish this year, from 3.71% late Thursday.

Among the day’s other market highlights:

* Shares of Citigroup fell 3.1% after the Wall Street Journal reported that the Federal Deposit Insurance Corp. was pressing for a management shake-up at the embattled bank company.

* Oil futures spiked above $70 a barrel after the job report before retreating to close down 37 cents at $68.44 a barrel in New York trading.