The weaker-than-expected figures in the States allayed London's recent worries over a rate hike by the US Federal Reserve in October and triggered a 136.5-point advance in the FTSE 100 to 6,332.1.
The blue-chip index recovered most of the ground lost earlier in the week as the benign economic numbers and the arrival of the much-awaited blue-chip bid - by NatWest for Legal & General - encouraged some big market players to return to the buying fray.
Brokers reported that some large institutions, which had been sitting tight ahead of the US employment report, had come back with a few juicy buying orders.
As often, the Dow Jones played a big part in UK affairs, supporting the domestic rally with a 200-plus-point rise just before the London closing bell.
The post-numbers optimism was tempered by a niggling worry that a US interest rate hike next month cannot be ruled out, especially if the Yankee economy continues to boom.
The second-liners had no time for doubts as bid talk and positive results continued to support small and midcap companies. The FTSE 250 smashed its previous all-time intraday and closing highs, ending 52.5 higher at 6122.4.
Breaking records has become a bit of a habit for the Small Cap, which finished 11.9 better at a best-ever 2837 - its 15th consecutive winning session.
Financials led the way among blue-chips, inspired by confirmation of talks of a cash-and-paper bid of around 200p per share by NatWest, down 68p to 1,143p for Legal & General, up 13p at 205.25p, in huge volume. Some traders voiced fears that NatWest will overpay for the insurer, while others said that rival bidders, such as Dutch giant Aegon, French insurer Axa, or even Lloyds TSB, up 17.5p to 841p, or Halifax, 27.5p higher to 712.5p, might gatecrash the deal.
The market seemed to have little doubt on the next target. Norwich Union rocketed 46.75p higher to 474.25p in hefty turnover of more than 32 million shares on talk that Barclays, up 14p to 1,797p, Lloyds or Halifax could pounce before the end of the year.
Insurers CGU, 85.5p higher at 992.5p after a Warburg push, Prudential, 50.5p higher at 998.5p, Allied Zurich, 35p better at 800.5p were also thrown in the merger speculation cauldron. In the midcap, talk of a tie- up between insurers Britannic, up 8p at 1050p and United Assurance, 2p higher at 398.5p, resurfaced while investment bank Perpetual was mooted as a target for one of the big boys and rose 132.5p to 3,937.5p.
Household goods maker Reckitt & Colman mopped up a 25p rise to 777p in good turnover on talk of a counterbid to its all-share merger with Dutch rival Benkiser. Drug group Glaxo Wellcome shot 66p higher to 1,716p. Analysts who have recently seen the company seem to believe that Glaxo wants a deal sooner rather than later, possibly with SmithKline Beecham, up 24.5p to 817.5p.
Pub groups had a frothy session. Greenalls gulped a 8p rise to 378.5p after confirming talks to sell its pubs division to Scottish & Newcastle, up 14.5p to 616.5p.
One-time Greenalls suitor Whitbread poured 18p higher to 832p after broker HSBC dashed rumours of a profit warning after a meeting with the company. However, fears of difficult trading continued to dog Bass, down a bitter10p to 827p, while South African Breweries frothed 30p higher to 540.5p on whispers of a deal. Vague talk of strike from Dutch giant Ahold sent Sainsbury 20.25p higher at 453p. Rival Safeway, up 7p to 268p, is also mooted as a target. Troubled MFI Furniture was also back in the bid frame and firmed 1.75p to 44.5p in heavy turnover.
Firmer rumours of corporate action underpinned building materials group Tarmac, up 18.75p to 520p.
Some dealers believed that rival Aggregate Industries, 3.25p higher to 82.75p ahead of next week's results, could restart merger talks aborted last year.
Emap's latest rally should not be enough to avoid relegation from the FTSE 100 next week. The publisher jumped 53p to 1043p after winning a London digital radio licence with Capital Radio, 31.5p higher at 911.5p.
The South African insurer Old Mutual is almost certain to join the FTSE 100 and rose 6.75p to 139p in large volume as the index funds moved in. Computer group Sage could also become a blue-chip. Yesterday it rose 167.5p to a record 3027.5p as investors moved back into tech stocks after recent good results. Sema, up 64p to 761p and Logica, 38.5p better at 843.5p, also benefited from the hi-tech frenzy. Rail maintenance group Jarvis steamed 15p ahead to 300p on revived talk of a blockbuster deal with Railtrack.
Travel group First Choice dived 10.5p lower to 177p on reports that the European Commission may block a bid from Airtours, up 1p at 445p, while transport group Arriva downloaded 8p to 328p on fears over next week's results.
Durlacher was one of the day's best minnows. The AIM-listed stockbroker jumped 210p to a best-ever 3,375p on talk of a pounds 300m-pounds 500m float for net company 365 Corporation, where Durlacher owns an 11 per cent stake. A float at the top of the range will value the holding at nearly half of Durlacher's market value.
Support Services group Stat-Plus was flat at 147.5p despite talk of deal to sell legal stationery on the web, while the e-commerce specialist Infobank logged on to a 14p rise to a yearly peak 136.5p on talk of a major deal with a blue chip.
SEAQ VOLUME 936.6m
SEAQ TRADES: 75,578
THE wonderstock Baltimore, the old Zergo, could soon dish out another deal. The designer of security software yesterday beamed 60p higher to 1027.5p, amid talk of an important contract win with a consortium of UK and US banks. According to the rumours, Baltimore could provide the technical know-how to produce a bank card that recognises digital fingerprints. Followers of the stock are also waiting for imminent news of its proposed Nasdaq listing.
THE OFEX-TRADED minnow Easyscreen could soon move to a larger stock market. Shares in the provider of dealing systems for derivatives were suspended at 1,020p yesterday pending an announcement. There is talk that Easyscreen, set up by some Liffe traders last May, could move to the main list or even to the mooted new market for hi-tech companies. A statement on the $2m sale of a 10 per cent stake in Easyscreen's US subsidiary is expected shortly.