Stocks jumped and commodities rallied on Friday after data showed U.S. job losses were less than expected in August, the second major report this week to ease fears the American economy may slip back into recession.

The price of government debt on both sides of the Atlantic fell as the report on the U.S. labour market offered fresh evidence that a double-dip recession may not be in the works. Recent poor data had strongly suggested a double dip might be ahead.

Private payrolls growth surprised on the upside, and U.S. employment declined far less than expected, confounding the market's gloomy prognosis in recent weeks on the U.S. economy.

We're not growing very fast, but it doesn't suggest the situation is continuing to deteriorate, said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

It's not a great report, but it's a bit better than expected, and it does not indicate that we're into some sort of headlong plunge into a double dip, Gault said.

Risky assets pared gains after a report on the U.S. non-manufacturing sector grew below expectations in August, even though it expanded for an eighth straight month.

Copper prices hit a fresh four-month high and silver climbed to its highest since March 2008 on the improved outlook for economic growth.

European shares hit a three-week closing high and the benchmark S&P 500 index was close to posting its biggest weekly gain in almost two months. The FTSEurofirst 300 <.FTEU3> index of top European shares ended 0.8 percent firmer at 1,063.70 points.

MSCI's all-country world index <.MIWD00000PUS> was up 0.9 percent and about 3.6 percent for the week -- its biggest weekly gain since the week ended July 11.

The Dow Jones industrial average <.DJI> was up 71.68 points, or 0.69 percent, at 10,391.78. The Standard & Poor's 500 Index <.SPX> was up 8.56 points, or 0.79 percent, at 1,098.66. The Nasdaq Composite Index <.IXIC> was up 19.81 points, or 0.90 percent, at 2,219.82.

While investors' appetite for risk rose on the payrolls report, data on national services by The Institute for Supply Management provided a mixed outlook for the economy.

What we're seeing here is that the recovery continues to bounce around. This supports our view that we're going to see a below-average recovery, though the jobs data earlier today made the case for a double-dip harder to make, said Channing Smith, vice president of Capital Advisors in Tulsa, Oklahoma.

Crude oil retreated after briefly rising on the jobs report, and gold prices curbed losses of more than 1 percent to trade lower on the services sector data.

U.S. light sweet crude oil fell $1.31 to $73.71 a barrel.

Debt prices fell.

The benchmark 10-year Treasury note, down a full point earlier in the session, fell 24/32 in price to yield 2.71 percent after the ISM report.

September Bund futures settled at 132.0, down 72 ticks on the day.

The U.S. dollar fell against the euro and commodity currencies after the jobs data boosted the appetite for riskier assets.

The dollar was down against a basket of major currencies, with the U.S. Dollar Index <.DXY> down 0.44 percent at 82.097.

The euro was up 0.48 percent at $1.2887, and against the Japanese yen, the dollar was up 0.24 percent at 84.49.

Oil prices edged into positive territory on the jobs report, then pared gains to turn lower after the services sector data.

U.S. light sweet crude oil fell $1.31 to $73.71 a barrel. Spot gold prices fell 55 cents to $1,250.20 an ounce.

Asian stocks edged higher before the job report, with MSCI's regional stock index outside Japan <.MIAPJ0000PUS> up 0.3 percent. Japan's Nikkei <.N225> rose 0.6 percent, but was still down more than 13 percent for the year.

(Reporting by Wanfeng Zhou, Ellen Freilich in New York; Kirsten Donovan, Atul Prakash and Jan Harvey in London; Writing by Herbert Lash; Editing by Kenneth Barry)