Wall St rallies as data calms rates fears

Wall Street's main indexes all gained more than two per cent after December payrolls expanded more than expected even as wage increases slowed and services activity contracted, easing worries about the Federal Reserve's interest rate hiking path.

United States non-farm payrolls rose by 223,000 jobs in December, Labor Department data showed, while a 0.3 per cent rise in average earnings was smaller than expected and less than the previous month's 0.4 per cent.

In another set of data, US services activity declined for the first time in more than two years in December as demand weakened, with more signs of inflation easing.

"We got good news on the inflation front with wage gains that are slowing," Verdence Capital Management chief investment officer in Hunt Valley, Maryland, Megan Horneman said.

"We got participation rates pick up again and yet we're still creating jobs. It's a kind of a win-win for the economy and on the other side, the ISM services report was really weak and broadly weak.

"That's basically making people think the Fed is nearing the end of what's been one of the most aggressive tightening cycles we've seen in decades.

"That's why the markets are taking off," she said.

By 4.23pm ET Friday, the Dow Jones Industrial Average rose 700.53 points, or 2.13 per cent, to 33,630.61; the S&P 500 gained 86.98 points, or 2.28 per cent, at 3895.08; and the Nasdaq Composite added 264.05 points, or 2.56 per cent, at 10,569.29.

Friday's rally boosted the benchmark S&P and the Nasdaq enough to snap four weeks of declines.

For the holiday-shortened week, the S&P rose 1.45 per cent while the Nasdaq added 0.98 per cent and the Dow advanced by 1.46 per cent.

For the gains, John Augustine, chief investment officer at Huntington National Bank in Columbus, Ohio, pointed to a calming of anxiety that the Fed would raise rates so much that it causes a recession.

"Today's reports may alleviate that pressure to force a recession," he said.

"They may already have slowed down the economy enough. They just need validation from inflation reports."

Still, the Fed last month projected an interest rate target peak of about five per cent and said it would keep rates high until inflation is where it wants it to be.

Fed officials on Friday acknowledged cooling wage growth and other signs of a gradually slowing economy, with Atlanta President Raphael Bostic hinting at the chance of a quarter percentage point hike at the next policy meeting.

But Huntington's Augustine said the central bank needs to see further slowing of price increases in the December inflation report, due out on Thursday, before deciding whether to slow its next rate hike.

It raised rates 50 basis points in December.

Several of the biggest US banks including JPMorgan and Bank of America will kick off the fourth-quarter earnings season this week.

"That's the part of the puzzle people haven't been able to figure out. How much should earnings estimates be cut for the calendar year or have they been cut enough?" Horneman said.

All the major S&P 500 indexes gained on Friday with materials' 3.44 per cent increase leading the pack.

Interest-rate sensitive technology was next with a 2.99 per cent gain.

The weakest sector was healthcare, which rose 0.89 per cent followed by energy's 1.68 per cent increase.

Consumer staples were boosted by Costco Wholesale Corp, whose shares jumped 7.0 per cent after the membership-only retailer reported strong December sales growth.

Shares in Biogen Inc closed up 2.8 per cent after the US Food and Drug Administration on Friday approved the Alzheimer's drug lecanemab developed by Eisai Co Ltd and Biogen for patients in the earliest stages of the disease.

Eisai's US shares closed up four per cent at $US64.20 ($A93.60).

Pfizer Inc shares advanced 2.5 per cent after reports of talks with China to secure a licence that will allow domestic drugmakers to manufacture and distribute a generic version of the US company's COVID-19 antiviral drug Paxlovid in China.

Bed Bath & Beyond Inc tumbled 22 per cent after Reuters reported that the home goods retailer was preparing to seek bankruptcy protection in coming weeks.

Advancing issues outnumbered decliners on the NYSE by a 6.69-to-1 ratio; on Nasdaq, a 2.59-to-1 ratio favoured advancers.

The S&P 500 posted 18 new 52-week highs and five new lows; the Nasdaq Composite recorded 97 new highs and 65 new lows.

On US exchanges, 11.15 billion shares changed hands compared with the 10.84 billion average for the full session in the past 20 trading days.