The Dow Jones industrial average gained 78.12 points to close at 6,703.79, its fourth record high this week after erasing a nearly 68-point opening slide.
Broader markets also jumped to new highs, turning positive in the afternoon despite the sharp drop in bonds, which sent long-term interest rates to their highest level since mid-October. NYSE volume was 545.75 million shares vs. 556.57 million yesterday.
The Standard & Poor's 500-stock index rose 4.59 to 759.4, and the NYSE's composite index rose 2.18 to 400.76. The Nasdaq composite index rose 5.81 to 1,332.01, and the American Stock Exchange index rose 4.30 to 586.04.
Stocks were dragged lower at the open after bonds plunged on a government report showing that businesses added a surprising 262,000 workers to their payrolls in December, well above analysts forecasts for about 190,000.
The increase, which held the unemployment rate steady at 5.3 percent, was the largest one-month gain since August and the latest in a stream of evidence that the economy closed out 1996 at a surprisingly quick, and potentially inflationary, pace.
As bond prices sank, the yield on the 30-year Treasury - a key determinant of corporate and consumer borrowing costs - jumped as high as 6.90 percent from late yesterday's 6.76 percent.