By Avantika Chilkoti, Akane Otani and Joanne Chiu 

U.S. stocks ripped higher Friday, heading toward big weekly gains, after data showed the economy defied expectations to add jobs in May.

The Dow Jones Industrial Average climbed 680 points, or 2.6%, to 26962 shortly after the opening bell. The S&P 500 advanced 2% and the Nasdaq Composite climbed 0.9%.

The Labor Department said the economy added 2.5 million jobs in May. Economists surveyed by The Wall Street Journal had expected a loss of 8.3 million jobs. The unemployment rate also unexpectedly fell, clocking in at 13%, compared with estimates of 20%.

All together, the report suggests the economy is recovering faster than many had expected from the fallout caused by the coronavirus pandemic. That added fuel to a stock rally that has put major indexes on course for big weekly gains.

Investors have been betting that the country will be able to both contain the spread of the coronavirus and reopen businesses in the coming months. Many are pricing in a "V-shaped" recovery: a sharp upturn in spending and growth that follows a short, painful collapse in economic activity.

Friday's jobs report appeared to be the clearest indication yet that the economy may be able to pull out of a downturn faster than investors had expected.

Something like this builds credibility for what the stock market has been telling you," said Brian Belkin, chief investment strategist for BMO Capital Markets. "There's a massive amount of negativity among macro analysts. But the proof is in the pudding."

Some investors urge caution, though.

Massive stimulus packages and the loosening of restrictions on business and travel across the world appear to have helped drive the stock market's recent surge. But many are fearful the gains may only be temporary.

Further government intervention might be needed to support businesses if activity doesn't rebound by the third quarter, said Daryl Liew, chief investment officer at REYL Singapore.

Stock gains were broad Friday, with all 11 sectors of the S&P 500 rising early in the trading session.

Shares of cyclical companies -- whose profits are closely tied to the fate of the economy -- were among the biggest gainers. Caterpillar jumped 6.7%, while Boeing rose 8.7%.

Bank stocks also posted big gains, with Bank of America up 7.6% and Goldman Sachs Group rising 3.1%.

Elsewhere, the Stoxx Europe 600 benchmark rose 1.2%. On Thursday, the European Central Bank scaled up its bond-buying program and Germany adopted its second economic-stimulus package since the start of the coronavirus pandemic.

"It's a step in the right direction from the European leaders and shows some unity," said Brian O'Reilly, head of market strategy for Mediolanum International Funds. Rising bond yields help banks, which borrow short-term to lend long-term, boosting profitability.

In Asia, Hong Kong's Hang Seng benchmark rose 1.7% and South Korea's Kospi rallied 1.4%.

Michael Wursthorn contributed to this article

Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com, Akane Otani at akane.otani@wsj.com and Joanne Chiu at joanne.chiu@wsj.com

(END) Dow Jones Newswires

June 05, 2020 09:56 ET (13:56 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.