- The Washington Times - Saturday, August 8, 2009

NEW YORK | The economy’s most vexing problem, unemployment, is showing the first signs of easing. And Wall Street is celebrating.

Major stock indexes jumped more than 1 percent Friday after the government said the nation’s unemployment rate unexpectedly fell in July for the first time in 15 months and that employers cut fewer jobs.

The surprise figures injected new life in a monthlong rally and provided validation for traders who have been betting since March that the economy is healing. The Dow Jones Industrial Average rose nearly 114 points to cap its fourth straight weekly gain. The Dow is at its highest level since early November.

The government said employers shed 247,000 jobs in July, the fewest in a year. Economists had expected 320,000 lost jobs. The unemployment rate dropped to 9.4 percent from 9.5 percent in June, rather than rising to 9.6 percent as forecast.

“It really gave the market the proof that it needed to see,” said Burt White, chief investment officer at LPL Financial in Boston.

The report is often the most anticipated bit of economic news each month on Wall Street, and nervousness about what it would reveal held stocks to modest moves most of the week. The exception came Monday when Ford Motor Co. said its monthly sales rose for the first time in nearly two years because the government’s “cash for clunkers” program was drawing customers. That, and good news about manufacturing, construction and banking, sent the Standard & Poor’s 500 index over 1,000 for the first time in nine months.

With the pop Friday, the S&P; 500 index is up 14.9 percent in only four weeks and 49.4 percent from a 12-year low in early March.

Still, some analysts say the gains have come too quickly and question whether an economic rebound can ever live up to the expectations investors are now setting.

“We’ve run very fast, very quickly,” said Marc Harris, co-head of global research for RBC Capital Markets in New York. “I think we’re due to take a breath.”

The Dow rose 113.81, or 1.2 percent, to 9,370.07. The broader S&P; 500 index gained 13.40, or 1.3 percent, to 1,010.48, while the Nasdaq composite index rose 27.09, or 1.4 percent, to 2,000.25.

Analysts say some of the market’s recent gains are tied to short-covering, in which investors have to buy stock after having earlier sold borrowed shares in a bet they would fall.

On other days, selling has been contained because investors don’t want to miss a rally that has surprised many traders with its strength. The Dow fell only 39 points on Wednesday, but it was the biggest drop in a month.

Meanwhile, bond prices fell as the jobs news limited demand for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.86 percent from 3.76 percent late Thursday.

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