* Nonfarm payrolls up by 223,000, just below the 224,000 expected
* Unemployment rate falls to lowest since May 2008
* S&P 500, Dow on track for best day since March
* Microsoft jumps on news it's not pursuing Salesforce
* Indexes up: Dow 1.4 pct, S&P 1.3 pct, Nasdaq 1.2 pct (Updates to early afternoon, changes comment)
By Tanya Agrawal
May 8 (Reuters) - Wall Street soared in early afternoon trading on Friday after strong jobs data for April indicated a pickup in the economy, which could prompt the Federal Reserve to raise interest rates only towards the end of the year.
U.S. job growth rebounded last month and the unemployment rate dropped to a near seven-year low, suggesting underlying strength in the economy at the start of the second quarter after growth hit a soft patch in the first.
"Right now the market's been pricing for December and the Fed's been pushing more of a narrative that we think suggests September, so we're more likely to see the Fed converge here to the market than the other way around," said Aaron Kohli, interest rate strategist at BNP Paribas in New York.
Nonfarm payrolls in April increased by 223,000, just below expectations, while the unemployment rate dropped despite more people entering the job market.
The 5.4 percent unemployment rate was within a whisker of the 5.0 percent to 5.2 percent range that most Fed officials consider consistent with full employment.
However, March payrolls were revised downwards to show only 85,000 jobs created, the least since June 2012, while average hourly earnings in April remained stuck in the range it has been in for the past few years.
"The revision to last month is certainly significant. I think this is consistent with most of the data that has been coming out: the economy is slowing a bit, job creation is slowing a little bit," said Uri Landesman, president of Platinum Partners in New York.
At 12:41 p.m. ET (1641 GMT), the Nasdaq Composite added 60.77 points, or 1.23 percent, to 5,006.32.
The Dow Jones industrial average rose 255.51 points, or 1.43 percent, to 18,179.57, on track for its best day since March 30.
The S&P 500 gained 26.96 or 1.29 percent, to 2,114.96, on track for its best performance since mid-March.
The last time all three indexes closed above 1 percent was on May 1. All three indexes are on track to close in the black for the week after choppy trading sessions in the past few days.
Every single Dow component was higher, with the majority notching gains of over 1 percent. All the 10 major S&P 500 sectors posted strong gains, led by a 1.8 percent jump in the health index.
Microsoft jumped 2.1 percent to $47.68 after Reuters reported that the company was currently not weighing an offer for Salesforce.com. Salesforce.com fell 2.9 percent to $72.33.
McDonald's rose 1.6 percent to $98.29 after it reported a lower-than-expected fall in worldwide sales at its established restaurants in April.
AOL jumped 10.8 percent to $43.65 after reporting revenue above analysts' expectations.
Advancing issues outnumbered decliners on the NYSE by 2,500 to 521, for a 4.80-to-1 ratio on the upside; on the Nasdaq, 1,782 issues rose and 871 fell for a 2.05-to-1 ratio favoring advancers.
The S&P 500 showed 19 new 52-week highs and 2 new lows; the Nasdaq was recording 62 new highs and 29 new lows. (Editing by Savio D'Souza)