Stocks rose Friday as investors shrugged off a weak employment report and pinned their hopes on an eventual economic recovery as indicated by a positive factory orders report.

The Dow Jones industrial average (search) finished up 128.43 points, or 1.52 percent, at 8,582.68. The broader Standard & Poor's 500 Index (search) rose 13.78 points, or 1.5 percent, at 930.08. The technology-laced Nasdaq Composite Index (search) ended up 30.32 points, or 2.06 percent, at 1,502.88, its highest close since June 2002.

The S&P 500 and the Nasdaq indexes recorded their third straight week of gains. For the week, the S&P 500 added 3.47 percent, the Dow gained 3.31 percent and the Nasdaq climbed 4.76 percent.

Stocks rose across all sectors, with banks, aerospace and technology companies posting the biggest gains. Airlines stocks soared after Merrill Lynch issued a bullish investment call on the beleaguered industry. All except two of the 30 blue-chip Dow components ended higher.

"Since the year 2000 people have been saying there will be a recovery in the second half of the year -- but now people are starting to believe it," said Arnie Owen, managing director of equities at Roth Capital Partners.

"People are saying in the next six months the market has got to pick up," said Todd Leone, head of listed trading at S.G. Cowen. "The war is over, and there is no bad news on the horizon."

Stocks opened lower and then rose steadily, underpinned by hopes for faster growth in the economy later this year. Investors had lifted the broad Standard & Poor's 500 index 8 percent in April as surprisingly strong first-quarter earnings fueled confidence on Wall Street.

Investors largely shrugged off a report showing the U.S. economy shed jobs for the third straight month in April and the unemployment rate hit a 4-month high at 6 percent. Separate data showed orders for U.S. manufactured goods rose by 2.2 percent in March, their best showing since July 2002.

"An awful lot of the bad economic news coming out may easily be a low point, and a lot of it reflects the extreme uncertainty building up to Iraq," said Ann Cody, research director at Hilliard Lyons in Louisville, Kentucky.

"The market is beginning to ignore the dry patch that we are in in the economy," said Stanley Nabi, managing director at Credit Suisse Asset Management, after major market gauges erased opening losses.

The factory orders report was unexpectedly upbeat for the troubled sector, which has been the weakest segment of the lagging economy.

"Those factory orders mean somebody somewhere sees the demand for products increasing, and for Wall Street that means companies have the money for spending," said Joseph Zock, president and portfolio manager at Capital Management Associates.

Airline stocks rallied after Merrill Lynch said the worst may be over for the industry and lifted its rating on several airlines to "buy" from neutral."

AMR Corp. (AMR) , parent of American Airlines, surged 66 cents, or 13.72 percent, to $5.47. Northwest Airlines Corp. (NWAC) leaped $1.30, or 15.2 percent, to $9.85. Continental Airlines Inc. (CAL) jumped $1.94, or 19.68 percent, to $11.80.

"The upgrade of the airlines is significant, as it would mean that people are ready to travel and vacation again," said Donna Van Vlack, director of trading at Brandywine Asset Management in Wilmington, Delaware.

On the Nasdaq, shares of online commerce company USA Interactive (USAI), which operates Web sites Expedia (EXPE) and Hotels.com (ROOM), climbed to an all-time high as investors continued to cheer its results. Shares rose $2.28, or 6.98 percent, to $34.96.

Communications chip stocks also rallied, led by an 11.8 percent jump in Cypress Semiconductor Corp. (CY), which forecast better-than-expected results. Analysts said the gains were fueled by early optimism about second-quarter business. Cypress finished up $1.12 to $10.60.

Boeing Co. (BA) , the world's largest aircraft maker, rose $1.50, or 5.53 percent, to $28.61 and was the blue-chip Dow's biggest percent gainer. On Thursday, Boeing said its plan to lease commercial jets to the U.S. Air Force as refueling tankers could generate as much as $2.8 billon in support revenues over the life of the proposed $17 billion lease.

Wal-Mart Stores Inc. (WMT) edged up 0.38 percent, after the world's No. 1 retailer said it agreed to sell its grocery distribution unit to Warren Buffet's Berkshire Hathaway Inc. for about $1.5 billion. It also said the deal would trim its earnings for the next two years. Wal-Mart added 21 cents at $56.15.

ChevronTexaco Corp. (CVX), the second-biggest U.S. oil company, ended up 4.03 percent, after it said first-quarter earnings more than doubled due to surging energy prices and improved profit margins from refining. Shares of ChevronTexaco rose $2.54 to $65.54.

Among losers, Cigna Corp. (CI) tumbled 5.42 percent, after the health insurer reported higher quarterly earnings, but investors worried about declines in its membership and Cigna's ability to control escalating health-care costs. Cigna ended down $2.91 at $50.74.

Advancers trounced decliners by a ratio of 25 to 8 on the New York Stock Exchange and 23 to 9 on the Nasdaq. Trading was heavy, with roughly 1.54 billion shares changing hands on the Big Board and more than 1.81 billion on the Nasdaq.

The Russell 2000 index, which tracks smaller company stocks, rose 8.84, or 2.2 percent, to 407.67.

Overseas, Japan's Nikkei stock average finished 0.6 percent higher Friday. In Europe, France's CAC-40 rose 0.3 percent, Britain's FTSE 100 gained 1.9 percent and Germany's DAX index advanced 1.5 percent.

Reuters and the Associated Press contributed to this report.