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TMX Broadcast Centre manager Kris Backus walks in front of the centre's display board in Toronto.

Sluggish U.S. recovery? Oncoming European recession?



Those concerns were cast aside by investors, who drove major indexes to multi-year highs on Friday as they embraced data that point toward a stronger-than-expected U.S. economy.



The Dow Jones industrial average rose 1.2 per cent, to 12,862.23 – its highest level since May 2008, before Lehman Brothers went bust and ushered in the worst months of the bear market.



The tech-heavy Nasdaq composite index hit an even more impressive milestone, closing at its best point since the dying days of the dot-com bubble in December, 2000.



The trigger for the rally came before markets opened, when the U.S. Labor Department reported that employers added 243,000 jobs in January, far ahead of expectations of a 140,000 gain. The unemployment rate retreated to 8.3 per cent from 8.5 per cent, leaving even normally bearish observers sounding unusually upbeat.



"Well, we sifted through the January employment data with our custom-made fine-tooth comb and could scarcely find a blemish in the report," said David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, in a note.



The ISM non-manufacturing index, a measure of service-sector activity, bolstered the view that the U.S. economy is on firmer ground than many had suspected. The ISM index rose to 56.8 from 53 in December. Economists had been expecting a far more modest gain to 53.2.



The Dow and the Nasdaq have been climbing in recent weeks as multiple indicators have suggested that pessimism about the U.S. economy might be overstated. Initial jobless claims have been falling steadily, while housing market activity has pointed to tentative improvements.



In Europe, where the sovereign-debt crisis ravaged the stock market in 2011, retreating yields on French, Italian and Spanish government bonds have eased concerns about funding costs for some of the more indebted euro zone members.



Stocks still face obstacles to further gains. European data continue to signal that a recession is likely on the continent; a contraction in economic activity there could spill into other parts of the world, including North America.



In the United States, the wild card is how the Federal Reserve will respond if the economy continues to improve.



The Fed has been willing to stimulate the economy with forecasts of sustained low interest rates and the potential for another round of quantitative easing, which would involve creating money to buy bonds. If better readings on the economy result in those measures being shelved, markets may not respond well.

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