Wall Street surges to three-month high on strong payrolls

NEW YORK (Reuters) - Wall Street rallied to its highest level since early May on Friday on a stronger-than-expected jobs report, putting the S&P 500 on track to snap a four-day losing streak.

Employers hired the most workers in five months in July, giving a lift to sentiment. At the same time, a rise in the unemployment rate to 8.3 percent kept alive the possibility that the Federal Reserve could provide additional stimulus to the economy.

The market had geared up for a strong start after investors took a second look at Thursday's statement by European Central Bank President Mario Draghi, seeing signs that aid would eventually come to the euro zone's debt-stricken nations.

"Yesterday, investors weren't too happy. Today, Europe was happy. Obviously, the employment numbers came in better than anticipated, and that added some positive fuel to the fire," said Ted Weisberg, a floor trader with Seaport Securities in New York.

"What is more interesting is that we're within 200 to 300 points of recovery highs, which is pretty incredible when you think of all the issues we face."

The Dow Jones industrial average <.DJI> gained 250.97 points, or 1.95 percent, to 13,129.85. The Standard & Poor's 500 Index <.SPX> gained 28.64 points, or 2.10 percent, to 1,393.64. The Nasdaq Composite Index <.IXIC> gained 64.21 points, or 2.21 percent, to 2,973.98.

The ECB indicated on Thursday it may start buying government bonds again to reduce crippling borrowing costs for Spain and Italy, but Draghi indicated that any intervention would not come before September.

Spain inched closer to seeking a sovereign bailout on Friday, but Prime Minister Mariano Rajoy said he needed first to know the conditions as well as the form any European Union rescue would take.

"Most of this rally is on possibility of the euro thing not being over. People who trade are looking at the bond market. Then again, Europe disappoints us on a regular basis. But you can't take your eye off of this," said Stephen Guilfoyle, US economist and trader at Meridian Equity Partners in New York. The pace of growth in the vast U.S. services sector edged up in July as new orders gained, but a measure of employment fell to its lowest level in nearly a year, according to an industry report released on Friday.

The S&P 500 index had fallen more than 1.5 percent in the past four sessions as investor hopes for central bank stimulus measures faded and a trading error at market maker Knight Capital Group Inc on Wednesday dealt another blow to confidence in market structure.

Knight Capital shares rose 29.5 percent to $3.34 as the company fought for survival after a $440 million trading loss caused by a software glitch. There were also unconfirmed reports that the embattled market maker obtained a credit line, helping its shares to regain some ground. Securities regulators are looking into the events surrounding the trading glitch.

Dow component Procter & Gamble Co advanced 3.4 percent to $65.65 after the world's largest household products maker posted a higher-than-expected quarterly profit and said it would repurchase $4 billion worth of its shares this fiscal year.

LinkedIn Corp jumped 14.2 percent to $106.80 after the professional networking site reported higher-than-expected revenue and raised its full-year outlook as it pocketed more money from subscribers, services aimed at businesses and advertising.

NYSE Euronext said new strategies and cost cuts should help the trans-Atlantic exchange return to growth next year after losses in its three main business lines reduced quarterly income by one-fifth.

According to Thomson Reuters data, of the 402 companies in the S&P 500 that have reported second-quarter earnings through Friday morning, 68 percent have beaten analysts' expectations, which is consistent with the past four quarters.

(Reporting by Anna Louie Sussman; Editing by Dave Zimmerman)

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