US STOCKS-S&P 500, Nasdaq hit record highs after strong June jobs report

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* Nonfarm payrolls rise more than expected in June

* Virgin Galactic jumps on announcing crewed flight plan

* Didi drops as China to conduct cyber security probe

* Indexes up: Dow 0.06%, S&P 0.31%, Nasdaq 0.47% (Updates to open)

July 2 (Reuters) - The S&P 500 and the Nasdaq hit record highs on Friday, as a bigger-than-expected rise in monthly payrolls offered tentative signs that a worker shortage could be starting to ease, putting the job market recovery back on track.

The Labor Department’s closely watched employment report showed nonfarm payrolls increased by 850,000 jobs last month, as companies raised wages and offered incentives to draw millions of reluctant unemployed Americans back into the labor force.

The unemployment rate rose to 5.9% from 5.8% in May, while average hourly earnings rose 0.3% last month, lower than forecast.

“While wage pressures are clearly building, today’s report will offer an element of comfort. The U.S. labor market is heating up, but it is not yet hot enough to force the Fed into adopting a more hawkish tone,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.

Markets have been spearheaded by inflation and economic data in the past few sessions, with investors fearing a potentially stronger-than expected economic recovery and runaway inflation could force the Federal Reserve to pare back its support.

After a strong start to the year, the S&P 500 and the Nasdaq began the second half at record levels, with technology , communication services and consumer discretionary sectors among the top boosts on Friday.

Focus now also shifts towards the second-quarter earnings season and progress on President Joe Biden’s infrastructure bill that could help the equity market keep the momentum.

Investors will look to minutes from the Fed’s June policy meeting next week which will offer more details on the policymakers thinking on inflation, bond tapering and interest rates at a time when easy monetary policy appears to be at an inflection point amid a booming U.S. economy.

At 9:59 a.m. ET, the Dow Jones Industrial Average was up 19.30 points, or 0.06%, at 34,652.83, the S&P 500 was up 13.37 points, or 0.31%, at 4,333.31, and the Nasdaq Composite was up 68.69 points, or 0.47%, at 14,591.07.

Tesla Inc rose 1.9% after it posted record vehicle deliveries for the second quarter that also beat Wall Street estimates.

Virgin Galactic Holdings jumped 15.4% after the space tourism firm said billionaire entrepreneur Richard Branson would travel to the edge of space on the company’s test flight on July 11, beating out fellow aspiring billionaire astronaut Jeff Bezos.

Didi Global Inc slipped 5.7% after China’s cyberspace administration said it would conduct a new investigation into the Chinese ride-hailing giant to protect national security and the public interest.

Declining issues outnumbered advancers for a 1.19-to-1 ratio on the NYSE and for a 1.79-to-1 ratio on the Nasdaq.

The S&P index recorded 30 new 52-week highs and no new low, while the Nasdaq recorded 42 new highs and 15 new lows. (Reporting by Devik Jain in Bengaluru; Editing by Maju Samuel)