Jul 7, 2007 3 min read

By Madlen Read AP Business Writer

NEW YORK (AP) – Wall Street ended the first week of the third quarter with a respectable gain Friday, shaking off early losses as investors found signs of strength in the government’s June employment report.

For the most part, investors were relieved to hear that the unemployment rate held steady at 4.5 percent in June for the third straight month, as expected, and that 132,000 jobs were added – fewer than in May, but slightly higher than the average forecast. The Labor Department data also showed that a larger number of jobs were created in April and May than previously thought, and that June’s average work week ticked up 0.1 percent.

Friday’s jobs report was the most significant economic release of the shortened Fourth of July week, and indicated a fairly robust job market, given the slow-growing economy. If the majority of Americans are employed, they will likely keep spending and boosting corporate profits.

But the market had some early mixed feelings about the report, and the major indexes began the day with declines. While the positive snapshot boded well for the long-term performance of the stock market, it also raised worries that a too-strong economy will make the Federal Reserve more willing to raise rates to curb inflation. Though the central bank said last week that inflation appears to be moderating, it wants to see further evidence before it considers loosening monetary policy.

Treasury bond prices weakened after the employment numbers, pushing up the 10-year Treasury note’s yield to 5.18 percent from 5.15 percent late Thursday. High yields can make mortgages more expensive for home buyers, slow business deals, and make bonds appear a more attractive investment than stocks.

But to many market watchers, higher rates are a positive sign; John O’Donoghue, co-head of equities at Cowen & Co., said it is unlikely investors will start selling stocks to invest in Treasurys unless the 10-year yield rises and stays above the 5.25 percent to 5.30 percent level.

“If yields are going higher because there’s growth in the economy, that’s actually good for stocks,” O’Donoghue said.

According to preliminary calculations, the Dow Jones industrial average rose 45.84, or 0.34 percent, to 13,611.68.

Broader stock indicators also pared early losses and advanced. The Standard & Poor’s 500 index rose 5.04, or 0.33 percent, to 1,530.44, and the Nasdaq composite index rose 9.86, or 0.37 percent, to 2,666.51.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

AP-ES-07-06-07 1620EDT