* 255,000 U.S. jobs added in July vs forecast 180,000
* S&P 500 financial index trading at 2016 high
* Indexes up: Dow 0.9 pct, S&P 0.77 pct, Nasdaq 1.1 pct (Updates to market close)
By Chuck Mikolajczak
NEW YORK, Aug 5 (Reuters) - U.S. stocks notched their best day in a month on Friday, with the S&P 500 and Nasdaq closing at record highs after a second straight month of robust labor market data boosted optimism that economic growth is accelerating.
The U.S. Labor Department report showed that nonfarm payrolls rose by 255,000 in July, far outpacing expectations for a gain of 180,000.
While the unemployment rate remained unchanged at 4.9 percent, it held below the 5 percent mark associated with full employment.
The S&P 500 ended at 2,182.87, its eighth closing high of the year, powered by a 1.9 percent gain in financials, which would be primed for a profit boost should the Federal Reserve raise interest rates.
JPMorgan Chase shares gained 2.7 percent to $66.30 and the financial index closed at its highest level of the year.
“This is a flat out strong report, there don’t appear to be any holes whatsoever,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.
“But we need to temper enthusiasm, with two straight positive payroll reports everyone is going to shift to the other side of the boat - first the boat was sinking and now everyone is going to think the boat is going to take off.”
Employment numbers were weak in April and May, and a surprisingly strong reading in June left investors unsure of the state of the economy. The June employment number was revised to 292,000 from 287,000.
The Fed may still wait for gross domestic product growth to improve and inflation to move closer to its 2 percent target before pulling the trigger on a rate hike.
The probability of a hike doubled to 18 percent for September after the jobs report and rose to about 46 percent for December, according to CME Group’s FedWatch tool.
The Dow Jones industrial average rose 191.21 points, or 1.04 percent, to 18,543.26, the S&P 500 gained 18.57 points, or 0.86 percent, to 2,182.82 and the Nasdaq Composite added 54.87 points, or 1.06 percent, to 5,221.12.
The Nasdaq surpassed a record set in July 2015.
For the week, the Dow rose 0.6 percent, the S&P 500 gained 0.4 percent and the Nasdaq advanced 1.1 percent.
Bristol-Myers plunged 16 percent after its lung cancer drug failed in a late-stage study while Merck, which makes a rival drug, rose 10.4 percent.
Bristol-Myers was the biggest drag on the S&P 500, while Merck gave the benchmark index its biggest boost.
Advancing issues outnumbered declining ones on the NYSE by a 2.64-to-1 ratio; on Nasdaq, a 2.57-to-1 ratio favored advancers.
The S&P 500 posted 29 new 52-week highs and no new lows; the Nasdaq Composite recorded 126 new highs and 21 new lows.
About 6.77 billion shares changed hands in U.S. exchanges, compared with the 6.58 billion daily average over the last 20 sessions. (Additonal reporting by Karen Brettell; Editing by Meredith Mazzilli)