Stocks rallied more than 1 percent on Friday, extending a rally in equities, after a report showed U.S. job growth surged in January.

Nonfarm payrolls jumped by 243,000 in January, the Labor Department said, the most since April and far exceeding forecasts. The unemployment rate dropped to a near three-year low of 8.3 percent.

People have been underestimating the economic recovery and the expansion we're going through, said Brad Sorensen, director of market and sector analysis at Charles Schwab in Denver. This report was really solid and continues a string of solid numbers. Things are better than people have expected.

In another upbeat report, the pace of growth in the services sector unexpectedly accelerated in January to its highest level in nearly a year.

The steady stream of positive reports has helped fuel a rally in stocks. The S&P 500 is up more than 6 percent so far this year and almost 25 percent since an October low.

We're starting to get extended in the near term, so it wouldn't be surprising to get a little bit of a pullback soon, Sorensen said, adding that he would use it to add to positions.

The Dow Jones industrial average <.DJI> jumped 163.52 points, or 1.29 percent, at 12,868.93. The Standard & Poor's 500 Index <.SPX> was up 17.17 points, or 1.30 percent, at 1,342.71. The Nasdaq Composite Index <.IXIC> rose 41.01 points, or 1.43 percent, at 2,900.69.

So far this week the S&P is up 1.6 percent and on track for its fifth week of gains. The Dow has risen 1.2 percent and the Nasdaq, also set for a fifth straight winning week, is up 2.5 percent.

Tyson Foods Inc rose 3.4 percent to $19.26 after quarterly earnings beat expectations.

Aon Corp also reported higher-than-expected profit that just beat estimates. Its shares fell 1.2 percent to $48.77.

Gilead Sciences Inc climbed 10 percent to $54.39 a day after announcing promising early results from a trial of a hepatitis C drug. It also said adjusted fourth-quarter profit was below consensus.

Of the 283 S&P 500 companies that have reported results thus far, 60 percent have posted results that beat expectations, a lower rate than in previous quarters.

Earnings this season have been mixed, with fewer companies beating expectations than in recent quarters. Many technology names, including Qualcomm Inc and Apple Inc , have posted blowout quarters, contributing to the recent strength in the Nasdaq.

(Reporting by Ryan Vlastelica; editing by Jeffrey Benkoe)

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