The price of government debt on both sides of the Atlantic fell as the report on the US labor market offered fresh evidence that a double-dip recession may not be in the works. Recent poor data had strongly suggested a double dip might be ahead.

Risky assets pared gains after a report on the US non-manufacturing sector grew below expectations in August, even though it expanded for an eighth straight month.

Copper prices hit a fresh four-month high and silver climbed to its highest since March 2008 on the improved outlook for economic growth.

European shares hit a three-week closing high and the benchmark S&P 500 index was close to posting its biggest weekly gain in almost two months. The FTSEurofirst 300 index of top European shares ended 0.8 percent firmer at 1,063.70 points.

MSCI's all-country world index was up 0.9 percent and about 3.6 percent for the week - its biggest weekly gain since the week ended July 11.

The Dow Jones Industrial Average was up 71.68 points, or 0.69 percent, at 10,391.78. The Standard & Poor's 500 Index was up 8.56 points, or 0.79 percent, at 1,098.66. The Nasdaq Composite Index was up 19.81 points, or 0.90 percent, at 2,219.82.

The benchmark 10-year Treasury note, down a full point earlier in the session, fell 24/32 in price to yield 2.71 percent after the ISM report.

September Bund futures settled at 132.0, down 72 ticks on the day.

The US dollar fell against the euro and commodity currencies after the jobs data boosted the appetite for riskier assets.

The dollar was down against a basket of major currencies, with the US Dollar Index down 0.44 percent at 82.097.

The euro was up 0.48 percent at $1.2887, and against the Japanese yen, the dollar was up 0.24 percent at 84.49.

Asian stocks edged higher before the job report, with MSCI's regional stock index outside Japan up 0.3 percent. Japan's Nikkei rose 0.6 percent, but was still down more than 13 percent for the year.