NEW YORK -- Jarred at first by another sign of a strong economy, stock traders did something surprising yesterday: They bid up stock prices for the biggest rally in more than a month.
By recent standards, yesterday's employment report ought to have been depressingly healthy, at least for stock and bond traders. The November unemployment rate hit a four-year low as 350,000 jobs were created, news that would normally have sent stocks and bonds falling out of fears of inflation and another move by the Federal Reserve to raise interest rates.
Instead, except for a small downturn before 10:45 a.m., the Dow Jones industrial average rose most of the day, closing up 44.75 points, at 3,745.62, the biggest surge since Oct. 28. For the week, the average gained 1 percent.
Contributing to the surge in stocks yesterday was a powerful rally in the bond market, where prices soared and the yield on the benchmark 30-year Treasury bond fell to 7.91 percent from 8.01 percent.
"The bond market didn't lose a step, it just continued to go up," said Bill Allyn, director of listed equity trading at Jefferies.
Apparently, many bond investors would now welcome the Fed's taking strong early action to resist inflation, which erodes the value of fixed-income securities.
The dollar also surged, rising above 100 Japanese yen for the first time in nearly two months.
"It was an absolutely crazy day -- exactly the opposite of what people expected," said Anthony Conroy, managing director of equities for Mabon Securities. "On a day like this, you're going to have 10 different stories to explain what happened."
Alan R. Ackerman, market strategist for Reich & Co., said, "The market remains a puzzle."
The Standard & Poor's 500-stock index gained 4.38 points, to 453.30, while the smaller-company Nasdaq composite index advanced 3.83 points, to 745.02.
Volume on the New York Stock Exchange was about normal, with 284.8 million shares changing hands, about equal to this year's average of 288 million shares.
But the session may have become a winner, in part because the professionals outsmarted themselves. So many Wall Street stock traders expected a rout yesterday after release of the unemployment figures that when prices did not fall, the market was squeezed into what is known as a short-covering rally, trader argot for professional short-sellers forced to buy stocks to stem their losses.
Short-sellers sell borrowed shares in the expectation that prices will fall and they can buy back the shares at a lower price, thus pocketing the difference. But if prices rise, all bets are off and investors must scramble to buy back the stock to cut their losses.
Bargain-hunters also contributed to the rise of some stocks that have been under pressure as of late. Best Buy rose 87.5 cents, to $33.75, in a slight recovery, after plunging $11.375 on Thursday when the electronics retailer said its third-quarter earnings would be below analysts' expectations.
Dell Computer rose $1.375, to $41.125, as it also recovered from a sharp drop on Thursday after CS First Boston downgraded the stock because of concerns about Intel's Pentium chips.
"That concern's still out there, but it may be a little overdone," said Ronald Doran, director of institutional trading at C. L. King & Associates. Intel, which rose 25 cents, to $62.875, said the flaw affects only complex mathematical calculations and won't affect most computer users.
Shares of electric utility companies rose amid speculation that interest rates won't rise much further. Higher rates hurt utilities by making their dividends less attractive and raising their borrowing costs.
The Dow Jones utilities average spurted 2.37, to 179.41, its biggest advance since a 3.56-point jump Nov. 23. Detroit Edison Co. jumped 62.5 cents, to $26.875; Houston Industries Inc. added 37.5 cents, to $34.25; and Consolidated Edison Co. of New York rose 50 cents, to $25.875.
Among other stocks, ITT gained $3.125, to $80.125. Paine Webber raised its recommendation on the stock to a "buy" rating.
And Coca-Cola gained $1, to $51.50.
Of the 30 component stocks that make up the Dow industrials, 26 rose, led by General Electric, which rose $1.50, to $47.125.
On the New York Stock Exchange, almost five stocks advanced for every three that fell, with 1,402 advancing stocks outnumbering 889 declining stocks.
Among the losers, Whirlpool fell $2.25, to $46.50, after it said the tTC Justice Department was conducting an antitrust investigation of the company's sales practices and reports that it is halting shipments to discount retailer Best Buy Co.
The New York Stock Exchange composite index rose 1.97 point, to 248.01, while the American Stock Exchange market value index rose 1.27 point, to 432.46.