Stocks rallied on Friday, pushing the Standard & Poor's 500 to a 10-month high as the July jobs report was less bleak than feared and underpinned hopes the economy was on track for recovery.

The data boosted stocks across the board, but especially consumer-dependent retailers, and all three major U.S. stock indexes wrapped up a fourth week of gains. An S&P retail index <.RLX> gained 3.6 percent,

Investors are looking for confirmation that the bottom (of the recession) is close, and employment is a big piece of it, said Fred Dickson, market strategist at D.A. Davidson in Lake Oswego, Oregon.

The economy's improving outlook also buoyed financials, with the S&P financial index <.GSPF> up 2.7 percent. JPMorgan Chase & Co climbed 4 percent to $42.36 and ranked among the stocks contributing the most to the Dow's gain.

Before the opening bell, government data showed the U.S. unemployment rate fell in July for the first time in 15 months as employers cut fewer-than-expected jobs.

Adding to the positive tone, insurer American International Group Inc posted its first quarterly profit in seven quarters, and its stock surged 20.5 percent to $27.14.

For the day, the Dow Jones industrial average <.DJI> was up 113.81 points, or 1.23 percent, at 9,370.07. The Standard & Poor's 500 Index <.SPX> was up 13.40 points, or 1.34 percent, at 1,010.48. The Nasdaq Composite Index <.IXIC> was up 27.09 points, or 1.37 percent, at 2,000.25.

For the week, the Dow was up 2.2 percent, the S&P 500 was up 2.3 percent and the Nasdaq was up 1.1 percent.

The S&P 500 is now up about 50 percent from its 12-year closing low in early March, helped by stronger-than-expected corporate earnings and a string of economic data that has suggested a recovery.

This morning, the Labor Department said U.S. employers cut 247,000 non-farm jobs in July -- far less than the 320,000 expected and the smallest decline in a year.

The U.S. unemployment rate slipped to 9.4 percent in July from 9.5 percent in June.

On Monday, the Institute for Supply Management said its index of national factory activity rose in July to the highest level since August 2008.

Retailers' shares rose for a second day, despite reporting on Thursday their 11th straight month of sales declines. Next week, a slew of retailers are expected to post quarterly results as the earnings season comes to a close.

About 73 percent of the S&P 500 companies so far have beaten analysts' earnings expectations, according to Thomson Reuters data.

Among Friday's earnings, AIG's stronger-than-expected results reassured investors that the embattled insurer, rescued by U.S. taxpayers during the financial crisis, was showing signs of life. At Thursday's close, the stock was up nearly 70 percent since the beginning of the week.

The housing sector also advanced, with the Dow Jones U.S. Home Construction index <.DJUSHB> up 6.1 percent.

The move came a day after Beazer Homes USA Inc reported a third-quarter loss that was narrower than expected, and after Goldman Sachs added D.R. Horton Inc to its conviction buy list.

Beazer shares rose 15.4 percent to $3.82, while D.R. Horton's stock climbed 7.8 percent to $13.52.

Among Nasdaq's advancers, graphics chipmaker Nvidia Corp rose 4.5 percent to $13.71 a day after it forecast third-quarter revenue above expectations.

Volume was about average on the New York Stock Exchange, with 1.47 billion shares changing hands, versus last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 2.46 billion shares traded, above last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 4 to 1, while on the Nasdaq, more than nine stocks rose for every four that fell.

(Reporting by Caroline Valetkevitch; Additional reporting by Ryan Vlastelica; Editing by Jan Paschal)

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