World stocks rallied on Friday, led by Wall Street, as investors cheered a crucial U.S. jobs report that showed wage growth slowed in December, fuelling bets that inflation is easing and the Federal Reserve need not be as aggressive as some feared.

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The MSCI All-World index jumped 1.3 percent. On Wall Street, the S&P 500 .SPX climbed 1.5 percent, the Dow Jones Industrial Average leapt 1.6 percent and the Nasdaq Composite rose 1.3 percent.

Data released early on Friday showed the U.S. economy added jobs at a solid clip in December, pushing the unemployment rate back to a pre-pandemic low of 3.5 percent as the labor market remains tight, while average hourly earnings rose 4.6 percent in December from a year earlier, down from 4.8 percent in November.

Also read: US hiring stays brisk as employers add 223,000 jobs

But some analysts cautioned against investors’ bets that the latest jobs report might tamper a hawkish Fed since the data pointed to a still-robust labor market.

"Everything else about this shows a very, very resilient labor market which doesn’t bode well for a smaller rate hike," said Randy Frederick, managing director of trading and derivatives at Charles Schwab in Austin, Texas, referring to the jobs data.

"The odds have been relatively low that we would get a half a point (of rate hike) on Feb. 1, but those odds are going up every day based on all this data."

Still, investors focused on the good news in the jobs data, and wagered the Fed might not need to raise interest rates by an aggressive 50 basis points at its next policy meeting in February.

Also read: India's GDP may grow 7% in FY23: First advance estimates

The dollar index, which measures the greenback against six counterparts including the yen and euro, fell 0.8percent to 104.29, weighed by tampered rate expectations.

U.S. two-year Treasury yields, which track interest rate expectations, receded to 4.2682 percent, spiked to a more than two-month high of 4.497 percent overnight before easing to 4.4571 percent during European morning trading. The 10-year yield, which rose as high as 3.784 percent in New York on Thursday, also pulled back sharply to 3.5728 percent.

The buoyancy on Wall Street spilled across the Atlantic, pushing Europe’s broad Stoxx 600 equity index up 1 percent higher. Data on Friday had showed a sharp drop in eurozone inflation. Germany’s Xetra Dax jumped 0.9 percent. A softer dollar boosted the euro, which climbed 0.9 percent to $1.06100.

Reduced rate expectations also bolstered oil prices. Brent crude rose 1.2 percent to $79.61 a barrel, while U.S. West Texas Intermediate crude futures gained 1.4 percent to $74.71.

A Reuters survey of economists showed the non-farm payrolls report was expected to show on Friday that 200,000 jobs were created in December, easing from November’s 263,000 pace but still about double the level the Fed considers sustainable.

Also read: US trade deficit shrinks most in nearly 14 years in November as imports decline