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Wall Street's main indexes rallied on Friday on news that while U.S. payrolls expanded more than expected, wage increases slowed and services activity contracted, easing worries about the Federal Reserve's interest rate hiking path.
U.S. nonfarm payrolls rose by 223,000 jobs in December, Labor Department data showed, while a 0.3% rise in average earnings was smaller than expected and less than the previous month's 0.4%.
In another set of data, U.S. services activity contracted for the first time in more than 2-1/2 years in December as demand weakened, with more signs of inflation easing.
"The stock market's wondering today did Goldilocks just enter the room? Did the Fed pull it off? Did they slow the economy and not employment?" said John Augustine, chief investment officer at Huntington National Bank in Columbus, Ohio, who saw the services and jobs reports as investors' cue to resume buying.
"The worry this year was that the Fed was going to force a recession. Today's reports may alleviate that pressure to force a recession. They may already have slowed down the economy enough. They just need validation from inflation reports."
By 2:22 p.m. ET, the Dow Jones Industrial Average rose 676.75 points, or 2.06%, to 33,606.83; the S&P 500 gained 86.36 points, or 2.27%, at 3,894.46; and the Nasdaq Composite added 262.26 points, or 2.54%, at 10,567.50.
A resilient labor market has powered the economy through consumer spending, but could still prompt the Fed to lift its target interest rate above the 5.1% peak it had projected last month and keep it there for a while.
Money market participants now see a 75% chance that the U.S. central bank will raise the benchmark rate by 25 basis points in February and keep the terminal rate just below 5% by June.
But Huntington's Augustine said the Fed likely needs to see further signs of slower price increases in the December inflation report, due out on Thursday, before deciding whether to slow its next rate hike to 25 basis points at its February meeting. It raised rates 50 basis points in December.
Also aiding sentiment were Fed officials acknowledging cooling wage growth and other signs of the economy gradually slowing, with Atlanta President Raphael Bostic hinting at the chances of a quarter percentage point hike at the next policy meeting.
All the major S&P 500 indexes gained with materials in the lead with a 3.4% gain. The weakest sector was healthcare, up 1%.
Consumer staples, which rose 2.8%, was boosted by Costco Wholesale Corp, which jumped 7% after the membership-only retailer reported strong December sales growth.
Pfizer Inc advanced 2.4% after reports of talks with China to secure a license that will allow domestic drugmakers to manufacture and distribute a generic version of the U.S. company's COVID-19 antiviral drug Paxlovid in China.
Bed Bath & Beyond Inc slid 21% to $1.33 after Reuters reported that the home goods retailer was preparing to seek bankruptcy protection in coming weeks.
Advancing issues outnumbered decliners on the NYSE by a 6.98-to-1 ratio; on Nasdaq, a 2.70-to-1 ratio favored advancers.
The S&P 500 posted 17 new 52-week highs and five new lows; the Nasdaq Composite recorded 87 new highs and 61 new lows.
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