Stocks modestly higher as report says employers cut fewer than expected jobs in May

Stock market pares gains after jobs report

NEW YORK — Mixed signals from the government’s monthly jobs report are giving investors reason to be cautious.

Stocks traded modestly higher in early trading Friday, after giving up larger gains. The Dow rose about 30 points, putting in just barely in positive territory for the year.

The Labor Department said 345,000 jobs were lost in May, significantly less than the half-million economists had been expecting and the fewest since September. But unemployment rate surged to a slightly higher-than-expected 9.4 percent from 8.9 percent in April, suggesting that companies are still reluctant to hire back laid off workers.

Unemployment has been one of the most closely watched gauges of the economy’s health throughout the recession. Rising job losses affect vast areas of the economy, including consumer spending, retail sales and the housing market.

The impact of the jobs report was evident in other markets, too. Safe-haven assets like gold and government bonds sold off sharply, while oil prices surged briefly above $70 a barrel — a new high for the year.

In the first half hour of trading, the Dow Jones industrial average rose 30.93, or 0.4 percent, to 8,781.17. The Standard & Poor’s 500 index gained 1.25, or 0.1 percent, to 943.71, while the Nasdaq composite index rose 0.15, or 0.01 percent, to 1,850.17.

Bond prices plunged early Friday as investors’ appetite for risker assets grew and as investors took the jobs data as a positive sign for the economy. Investors tend to load up on bonds, which are considered a safe-haven investment, during times of economic distress, and unload them when signs of recovery emerge.

The yield on the benchmark 10-year Treasury note, a widely used benchmark for interest rates on mortgages and other kinds of loans, jumped to a fresh high for the year of 3.79 percent from 3.71 percent late Thursday.

On Thursday, both the S&P 500 index and the Nasdaq hit new highs for the year, and both are showing gains for 2009. During early trading Friday, the Dow was trading in positive territory for the year.

Besides the employment report, investors were focused on news about individual companies.

The Wall Street Journal reported that the Federal Deposit Insurance Corp. is pressing for a management shake-up at Citigroup Inc. The embattled New York-based bank has already received $45 billion in government rescue funds. Last month, the government determined that it would need to raise an additional $5.5 billion as a buffer against future losses.

Citigroup shares added 4 cents to $3.61.

Shares of computer maker Apple Inc. rose ahead of the market’s opening following a report that co-founder and CEO Steve Jobs, who has been on medical leave since January, will return to the company’s helm later this month as expected. Jobs, a survivor of pancreatic cancer, said at the start of the year that he was suffering from a treatable hormone imbalance. Apple shares rose 74 cents to $144.48.

Stocks have rallied strongly over 12-year lows reached in early March as improving economic data and better performance at banks gives investors hope that the recession could end some time this year.

Many analysts argue that the market’s overall direction is upward, although in recent weeks investors have become worried about rising commodity prices and sinking dollar — which can lead to inflation — as well as higher interest rates.

Oil prices extended their three-month rally, briefly moving above $70 a barrel following the jobs report.

Overseas, Japan’s Nikkei stock average gained 1.0 percent. In afternoon trading, Britain’s FTSE 100 rose 2 percent, Germany’s DAX index rose 1.4 percent, and France’s CAC-40 rose 2.1 percent.