The Dow Jones industrial average shot up 244 points to 13,123 shortly before noon. The broader Standard & Poor's 500 index rose 28 points to 1,393, and the Nasdaq composite added 62 points to 2,972.
Markets had been slumping all week after central banks in the U.S and Europe took no new action to shore up the economy, as many investors had hoped.
The Labor Department's closely watched monthly jobs report gave investors assurance that the U.S. economy may be doing better all on its own. U.S. employers added 163,000 jobs last month, a sharp turnaround following months of sluggish hiring.
Between April and June, the economy added an average of just 73,000 jobs a month compared with 226,000 jobs per month in the first three months of the year.
"It's one step forward," said Joe Bell, senior equity analyst at Schaeffer's Investment Research. "But we would like to see continued improvement in the labor market in coming months."
There was also some good news from the service sector, a broad part of the economy that includes financial services such as banking, retail, health care and utilities.
The Institute for Supply Management reported that U.S. service companies grew at a slightly faster pace in July, with a reading of 52.6. Any number above 50 means that business is growing for service providers.
The benchmark 10-year Treasury note was yielding 1.55 percent, up from 1.48 percent on Thursday. Bond yields rise when investors move money out of low-risk assets like U.S. government debt.
Oil prices also soared as investors became more optimistic about the economy following the jump in hiring by U.S. employers. Benchmark crude shot up $4.08 to $91.21 on the New York Mercantile Exchange.
Despite the gain in hiring, there were still enough signs of weakness in the latest jobs report to keep hope alive that the Federal Reserve may take new steps to kick-start the economy at its next meeting in September. A separate survey of households by the Labor Department found that the unemployment rate rose to 8.3 percent in July from 8.2 percent in June.
"I'm not ready to declare victory just yet," said Uri Landesman, president of hedge fund Platinum Partners. "Lending activity is still pretty low because banks aren't taking that much risk, and it's hard for an economy to expand when banks are on tenterhooks themselves."
At the end of a two-day policy meeting this week, the Fed said it would take action on the economy "as needed to promote a stronger economic recovery." Also on Thursday, the European Central Bank dampened investors' mood when it didn't provide details on how it plans to tackle the continent's debt crisis.
Several U.S. companies turned in strong earnings reports. Procter & Gamble, which makes Tide, Bounty, NyQuil and many other consumer products, reported a 45 percent surge in quarterly earnings, easily beating Wall Street's forecasts. P&G's stock rose $1.54 to $65.06.
Other stocks making big moves included:
Knight Capital jumped 28 percent after the company obtained an emergency credit line, according to news reports. The trading firm was responsible for stock market disruptions on Wednesday which will cost it $440 million. The stock had fallen 75 percent over the previous two days. On Friday, the stock rose 77 cents to $3.35.
LinkedIn shot up $13.55 to $107.06. The social media company reported that its second-quarter revenue increased faster than analysts had expected. LinkedIn also raised its full-year revenue forecast.
Kraft Foods rose $1.50 to $40.53 after reporting a 5 percent jump in its second-quarter profit. Higher prices helped offset a drag from raw-materials costs and currency exchange rates.
Zipcar plummeted $3.69 to $6.94. The stock reached an all-time low Friday after the car-sharing network reported lower-than-expected revenue in the second quarter and cut its annual revenue estimate.