Figures from the Labor Department showed that employers in the U.S. added 243,000 jobs in January. As well as being the highest in nine months, the gain was around 100,000 more than anticipated.

The advance also contributed to a fifth straight fall in the U.S. unemployment rate. At 8.3 percent, it’s the lowest in three years.

The January jobs report was filled with other encouraging data and revisions. Hiring was widespread across many high-paying industries and pay increased, too.

“In terms of the broader outlook, one report does not a trend make but there is little doubt that U.S. economic data continues to surprise on the upside,” said Dan Greenhaus, chief global strategist at BTIG.

“We’ll have to wait until February’s report to see if this continues but for now, the risk rally is clearly on and from an economic perspective, it is most certainly warranted,” Greenhaus added.

In Europe, the FTSE 100 index of leading British shares was up 1.4 percent at 5,875 while Germany’s DAX rose 1.3 percent to 6,743. The CAC-40 in France was 0.8 percent higher at 3,405.

In the U.S., the Dow Jones industrial average was up 0.9 percent at 12,819 while the broader Standard Poor’s 500 index rose 1 percent to 1,338.

The dollar also garnered some strength from the jobs figures as traders scaled back their expectations that the Federal Reserve would be pumping more money into the economy, evidenced also by a fall in Treasuries. The euro was trading 0.3 percent lower at $1.3097 while the dollar was 0.6 percent higher at 76.61 yen.

Andrew Wilkinson, chief economic strategist at Miller Tabak Co., said the Fed would need more evidence before it is comfortable about the durability of the U.S. recovery, especially with the housing market still in a fragile state.

“It will take a series of repeat reports like today’s to deliver meaningful improvements to the unemployment rate before the Fed will feel confident that any improvement in employment prospects will replace the need for it to massage yields lower,” Wilkinson said.

Market sentiment has been fairly upbeat so far in 2012, partly on the back of a run of fairly strong U.S. economic data, which has convinced investors that the U.S. economy is over its soft patch from last summer.

The state of the U.S. economy contrasts with that of Europe, which appears headed for recession.

Official figures showed retail sales in the 17-nation eurozone dropped 0.4 percent during December, in contrast to expectations for an increase of the same amount.The data reinforced expectations that the eurozone contracted during the fourth quarter of the year. Eurostat is due to publish its first estimate for the quarter on Feb. 15.

The focus on the U.S. has proved a welcome diversion for some traders from monitoring the daily grind of Europe’s debt crisis, where much hinges on whether Greece can secure a deal with its private creditors, as is anticipated. A deal is expected soon, though that has been the official line for a few weeks.

Earlier in Asia, the picture was mixed.

Japan’s Nikkei 225 index fell 0.5 percent to close at 8,831.93 but Hong Kong’s Hang Seng ended marginally higher at 20,756.98.

Mainland Chinese shares extended gains fueled by news of fresh support for the farming and small-business sectors, with the benchmark Shanghai Composite Index rising 0.8 percent to 2,330.41 while the Shenzhen Composite Index added 1.5 percent to 878.29.

Oil markets were relatively subdued. Benchmark oil for March delivery was up 39 cents at $96.75 per barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.

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After a year in which stocks moved in near-lockstep regardless of individual merit, the herd mentality is crumbling away.

The move away from a frenzied rush in and then back out of the market is a welcome sign for stressed-out fund managers and lay investors alike.

“If I think something looks cheap I’m more prepared to own it because I think that will matter. Before, I would throw up my hands and say, ‘So what? If it’s perceived as a higher risk asset then it’s going to crater with any nasty news out of Europe,’” said Art Steinmetz, chief investment officer at OppenheimerFunds in New York.

The change reaffirms the diversification strategies that underpin trillions of dollars worth of savings meant for college tuition and retirement. When just about everything is moving in the same direction, investors have fewer ways to cushion market swoons.

In 2011, daily activity in individual stocks was less dependent on company reports than on action in European government debt markets, and the equity, currency and commodities markets traded in tandem.

Now that stocks are going their own way, it’s been good for so-called active fund managers, those who decide what individual stocks are best to hold rather than follow an index.

In January, about 70 percent of active managers outperformed the SP 500, compared with just 23 percent in 2011, according to Bank of America/Merrill Lynch data.

“Our traders have had their best month since 2009 because of the fall-off in correlation,” said Don Bright, a director and trader at Bright Trading in Chicago. “We’re doing a lot of homework on earnings since fundamentals are driving individual stocks again.”

BREAKING AWAY

Correlations, a measure of how tight a relationship individual securities or entire markets have with each other, have fallen sharply since the volatile trading days of last summer, according to Marko Kolanovic, head of equity derivatives at JPMorgan Chase Co.

“We are currently witnessing the largest drop in realized correlation in the recent history of the U.S. stock market,” he wrote in a recent note to clients. The rolling 10-day correlation of SP 500 stocks had reached 80 percent in the fourth quarter of 2011, and fell to around 10 percent in early January, according to the bank.

Rob McIver, co-portfolio manager for the $3.8 billion Jensen Quality Growth fund (JENSX), said he grew increasingly frustrated over the second half of last year as he watched the companies in his portfolio increase earnings and yet suffer with the broad stock market.

McIver finished the year with a loss of 1 percent after dividends, compared with a 2 percent gain for the SP 500.

One of his holdings was Emerson Electric (EMR.N), which sagged throughout the spring and summer as the euro zone crisis worsened. Strong second-quarter results didn’t interrupt the trend.

“Emerson was almost like the canary in the coal mine,” he said. The stock lost 18 percent in 2011; it is up more than 12 percent so far this year.

ALL IN VS. ALL OUT

For their part, individual investors aren’t yet convinced. Despite a 4.3 percent increase in the SP 500 in January – the second-best month since the end of 2010 – trading volume is down 15 percent from a year ago.

Volatile, correlated trading amplifies the post-flash crash suspicions of many retail investors who see markets as the playthings of big money with the resources to hire legions of PhDs and use expensive technology to keep up with high-speed trading.

Cliff Downing, 53, a small business owner in Wilburton, Oklahoma and a stock picker since the age of 10, has sold most of his stocks and closed out his brokerage accounts since 2008.

“On top of working in the major markets I used to like the (over-the-counter) Pink Sheets but I don’t do any of it anymore. I’ve liquidated everything and moved things to other places,” he said.

Since the financial crisis began to get a grip at the start of 2008, investors have pulled more than $400 billion from U.S. equity funds, and the figure keeps growing, with $7 billion withdrawn so far this year, according to the Investment Company Institute.

“Prior to the financial crisis, it was easy to have the view that you could focus more on the micro and individual companies and be fine,” said John Roth, the manager of the $6.5 billion Fidelity Mid-Cap Stock fund (FMCSX) and the $1.8 billion Fidelity New Millennium Fund (FMILX). “But the last four years have shook the system.”

For now, those worries have abated, and stockpickers are in a position to thrive if Europe’s debt talks proceed and U.S. economic figures continue to improve.

“The market is starting to trade stocks based on underlying fundamentals,” said Sudhir Nanda, portfolio manager of the $189 million T. Rowe Price Diversified Small Cap Growth fund (PRDSX).

“Autos and the auto sector were improving all the time last year, but the stocks were getting punished because people were so worried about risk,” said Nanda. His fund has positions in auto suppliers TRW Automotive (TRW.N) and Tenneco (TEN.N), which were both hit hard in 2011 on global economic concerns.

So far, 2012 has been better for them. TRW and Tenneco are both up 24 percent after losing 38 percent and 27 percent in 2011.

STILL UNRESOLVED

Some analysts caution that the return to profitable stock-picking could be short-lived.

“The sense of real panic about some kind of meltdown in Europe has abated,” said Jonathan Golub, chief U.S. equity strategist at UBS. “But I think at the end of the day that this is going to be another year where the macro is going to matter.”

Fund managers looking to distinguish themselves from others now have to contend with this quarter’s earnings trends, which show a lot of companies suffering declining revenue and a reduced number of companies beating earnings forecasts.

Derivatives strategists at JPMorgan Chase note that implied correlation – expectations for how tight the relationships between stocks will be in coming months – has only declined modestly.

That suggests investors are still hedging against a flare-up of troubles, likely from Europe.

“The European crisis, which is by no means resolved, is a pot that is at least not boiling at this point. It’s a pot that’s simmering,” said OppenheimerFunds’ Steinmetz. “That fear of transmission through the banks was what was keeping risky markets highly correlated. Now we can get back to fundamentals.”

(Reporting By David Randall, Edward Krudy and Ryan Vlastelica; Additional reporting by Doris Frankel in Chicago; Editing by Martin Howell)

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The broad-based gains on solid trading volume also sent the Dow Jones industrial average near a four-year high. The SP 500 extended its 2012 advance to about 7 percent and was at its highest level in more than six months.

The U.S. economy created jobs at the fastest pace in nine months in January and the unemployment rate dropped to nearly a three-year low of 8.3 percent, the government said.

“It is really hard to find something not to like in the jobs report,” said Andrew Goldberg, market strategist at JP Morgan Funds in New York. “There is genuine strength in this report with broad-based jobs creation.”

While the news was positive, it will take more months of substantial job gains to maintain momentum in a market that has risen more than 25 percent since October lows.

“There is no doubt that no matter how good this report is, this is still a lukewarm jobs recovery,” Goldberg said. “There is a long way to go for this economy.”

More than 450 stocks across all sectors hit 52-week highs, including Apple (AAPL.O), United Parcel Service (UPS.N), Yum Brands (YUM.N) and MasterCard (MA.N). The number of NYSE stocks making new 52-week highs was at it highest since July.

Wayne Kaufman, chief market analyst at John Thomas Financial in New York, said he was having a hard time identifying stocks that did not show signs of being overextended.

“Seventy four percent of stocks are over their own 200-day moving average. Those are bull-market statistics,” he said.

Consumer discretionary shares and other stocks tied to an expanding economy led gains. Financial shares (.GSPF) rose 2.7 percent, while industrials (.GSPI) and discretionaries (.GSPD) added 1.7 percent to 2 percent.

In another report signaling strength, the pace of growth in the services sector unexpectedly accelerated in January to its highest level in nearly a year.

The Dow Jones industrial average (.DJI) gained 156.82 points, or 1.23 percent, to 12,862.23. The Standard Poor’s 500 Index (.SPX) rose 19.36 points, or 1.46 percent, to 1,344.90. The Nasdaq Composite Index (.IXIC) added 45.98 points, or 1.61 percent, to 2,905.66.

Signs of an improving economy and an absence of bad news from Europe have helped Wall Street stocks rally since last year. But analysts caution that the market is still susceptible to risks such as a flare-up in Europe’s debt crisis or geo-political uncertainty in the Middle East that could generate an oil price shock.

For the week the SP ended up 2.2 percent for its fifth week of gains in a row. The Dow rose 1.6 percent and the Nasdaq also advanced for a fifth straight week, up 3.2 percent for the best week since early December.

The SP Small Cap 600 (.SML) hit an all time high.

Nonfarm payrolls jumped 243,000, the Labor Department said, as factory jobs grew by the most in a year. The jobless rate fell to 8.3 percent – the lowest since February 2009 – from 8.5 percent in December.

“The real stimulant to future economic growth is the ‘boost in confidence’ this report provides to the roughly 92 percent of the work force which already has a job,” said Jim Paulsen, chief investment strategist at Wells Capital Management in a research note.

Four stocks rose for each one that fell on both the Nasdaq and NYSE. Volume on the NYSE, Amex, and Nasdaq was 8.03 billion shares, more than the daily 200-day moving average of 7.75 billion.

More than half way through the earnings season, 60 percent of SP 500 companies that have reported have beaten expectations

according to Thomson Reuters I/B/E/S data.

Gilead Sciences (GILD.O) was one of the top gainers on the SP 500, up 10.9 percent to $54.69 a day after announcing promising early results from a trial of a hepatitis C drug. It also posted adjusted fourth-quarter profit below consensus.

(Reporting by Edward Krudy; Editing by Kenneth Barry)

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“The question needs to be asked whether there have to be consequences (for management),” Johannes Witt, a board member representing the interests of labour, told German weekly Euro am Sonntag in comments published on Saturday.

“Can someone who wanted to change the status quo by finding a partner only to see that (deal) collapse still lead this company into the future?”

Francioni’s term ends in December, and contract extensions for CEOs in Germany are often agreed about a year in advance.

On Thursday, Boerse and NYSE terminated their merger plans after the European Commission blocked the deal to prevent handing the combined group a “near monopoly.

Boerse’s labour leaders had undermined its campaign to convince German regulators a deal strengthened Frankfurt’s role as a financial centre when they urged shareholders to reject the deal, fearing key responsibilities would be moved to New York.

Separately, Deutsche Bank’s German retail asset management unit DWS called for a fresh start at the exchange operator in comments published by business weekly WirtschaftsWoche on Saturday.

“The merger tied up management capacity for more than a year. In the past couple of years, Boerse has stagnated, and now more dynamism needs to return,” said Henning Gebhardt, head of European equities at DWS.

“Now and then there needs to be a fresh start – whatever form that might take (…) Francioni, of all people, does not come out of this without a scratch,” Gebhardt told the magazine.

The fund manager said he was also unsatisfied with Boerse’s development in overseas markets.

“Asia is where it’s at. That’s where to go for a piece of the action. I’m starting to suspect that the Boerse is not always the preferred partner there,” he said.

“The company must listen more closely to what its customers want, since they are looking for alternatives and are migrating to new platforms like Chi-X or Bats,” Gebhardt continued.

Boerse Chairman Manfred Gentz has rejected the idea of any immediate consequences for the Boerse due to the collapse of the NYSE merger, however, calling instead for calm and continuity.

(Reporting by Christiaan Hetzner, additional reporting by Andreas Kroener)

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Since the 2008 financial crisis, the nation’s professional stock-pickers — who manage billions for pension funds, endowments and wealthy families — have said stocks were too stuck-together to build smart, market-beating portfolios.

When stocks are rising and falling in unison based on the same big-picture economic news, with little regard for the companies behind them, it’s tough to beat the market.

That’s no longer a problem for the 2,000 relatively small companies in the Russell 2000 index. Correlation among Russell 2000 stocks, as measured by data analysts at Credit Suisse, plunged to 20 percent in late January, from 74 percent in September.

Meanwhile, the Russell has been on a historic upswing, gaining more than 36 percent in the past four months, compared with 22 percent for the much-bigger companies in the Standard Poor’s 500 index.

Last month, the mighty Russell rose 7 percent — 60 percent better than the SP 500, and its strongest January since 2006. The median market value of a Russell 2000 company is $563 million — about one-twentieth the median size of SP 500 companies.

It should be a small-stock-picker’s paradise. Yet only 42 percent of the small-cap funds tracked by Credit Suisse are beating the market so far this year, compared with half of SP 500 funds.

“This should have been a period when stock-pickers should have done well, and unfortunately, it just didn’t happen,” says Lori Calvasina, the lead author of the Credit Suisse report. “It does feel like this was an opportunity that got missed.”

So how did so many fund managers end up holding the wrong stocks? They were too cautious, Calvasina says.

Late last year, many were afraid that Europe’s debt crisis would boil over, threatening the U.S.’s slow economic recovery. They set about buying “high-quality” stocks — bigger companies, often in industries that do well when the economy is weak. Traders also bid up stocks of companies that do most of their business here in the U.S., Calvasina says.

Those aren’t the stocks driving the Russell index’s gains. As the economic outlook has improved this winter and traders have grown less worried about Europe, stocks have gained the most in sectors that are sensitive to the economy, such as homebuilders, boatmakers and furniture manufacturers.

“Plain and simple, (fund managers are) just not positioned for this,” Calvasina says. “The portfolios that most small-cap fund managers have built are positioned to outperform in pullbacks, not to dominate in rallies.”

One investment adviser who gave in to last fall’s economic worries is Don Olmstead, managing director of Novare Capital in Charlotte, N.C. Olmstead sold his clients’ small-cap stocks in September because the market was volatile and it looked like a financial shock from Europe might push the U.S. into a double-dip recession.

“If we were going into a slower-growth type of an economy, small-cap was not a place to be in our clients’ portfolios,” says Olmstead, whose company invests about $500 million on behalf of families, trusts, foundations and corporations.

Olmstead’s was the correct call for many investors. Small-company stocks are inherently risky, and they fall faster when the economy hits a snag. Even when his company is confident enough to endorse small-cap stocks, Olmstead says, portfolio managers still assess whether they’re a smart choice for a given client’s account.

Investors seeking a little more risk in their financial lives still have time to join the small-cap rally, says Sam Stovall, chief equity strategist at SP’s Capital IQ, a data and research company.

One reason: Russell 2000 stocks fell further during last year’s selloff, so they have further to climb. The Russell 2000 skidded 30 percent between its April 29 high and its Oct. 3 low last year, compared with 19 percent for the SP 500 and 17 percent for the Dow Jones industrial average.

After last year’s losses, investors should ask what investments typically do well in the first year of a new bull market, Stovall says. “The answer is, stocks over bonds, small-caps over large-caps,” he says.

Stovall said last year’s sell-off amounted to a “mini-bear market” because the major indexes declined less than the 20 percent typically that defines a bear market. The market has experienced eight such baby-bear corrections since World War II. Each time, stocks were sharply higher three, six and 12 months later.

“For four months of pain, you get an average of 12 months of pleasure, and right now, we’re four months into the 12,” Stovall says.

But this year’s small-cap gains aren’t merely a normal rebound from last year’s overselling, says Doug Roberts, chief investment strategist with Channel Capital Research. He says they’re also a result of the Federal Reserve’s policy of keeping short-term interest rates near zero.

Smaller companies generally have more trouble borrowing than their bigger counterparts, Roberts explains. But when the Fed is using all of its tools to spur growth, as it has during this recovery, they can borrow more cheaply. That increases their chances of success, Roberts says.

“It’s the cheap money, or the liquidity, that drives up stock prices,” he says.

To beat broader indexes, analysts say, it’s worth focusing on companies’ fundamental strengths — especially as correlations break down and companies’ financial results retake center stage.

Stovall says investors should focus on sectors that do well during periods of growth and select companies with strong analyst ratings and high price targets.

Calvasina says small-cap pickers should chase “low-quality” bets — tiny companies with low return on equity, negative earnings and low expectations among Wall Street analysts. That’s a lot easier for fund managers, who typically have access to much better company information than individual investors.

Companies that suffered from economic fears, such as homebuilders and shippers, have been outperforming and surprising investors. Their stock prices are jumping.

Take The Ryland Group Inc., a homebuilder in Westlake Village, Calif., with a market value of about $902 million. The stock has more than doubled since October’s low, despite its having lost money in each of the seven previous quarters. Ryland eked out a profit of 2 cents per share profit in the quarter ended Dec. 31, it said last week.

John Fox, director of research at Fenimore Asset Management in New York state, says traders should look for companies that aren’t already picked-over by Wall Street analysts.

“In small-cap world, you have many more stocks to pick from, and you can find companies that may have one analyst looking at them, or no analyst coverage at all,” he says. “That’s what’s different.”

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Follow Daniel Wagner at www.twitter.com/wagnerreports.

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The Dow jumped 156.82 points to 12,862.23, its highest mark since May 19, 2008, about four months before Lehman Brothers investment bank collapsed. In May 2008, credit markets were tightening up, subprime mortgages were going sour and Bear Stears had already collapsed.

Before the market opened, the Labor Department said the economy added 243,000 jobs in January. It was the strongest job growth in nine months. The increase in hiring pushed the unemployment rate down to 8.3 percent, the lowest since February 2009.

The surprising data gave financial markets a morning jolt that lasted throughout the trading day. The Nasdaq index closed 45.98 points higher at 2,905.66, its highest since December 2000, during the steep decline that followed the dot-com stock bubble.

The price of ultra-safe Treasury notes dropped, sending yields higher, and the price of oil rose for the first time in a week.

“In this economy, only one variable matters right now, and that variable is employment,” said Lawrence Creatura, an equity portfolio manager at Federated Investors. “This report was great news. It was beyond all expectations, literally. The number was higher than even the highest forecast.”

The Standard Poor’s 500 index added 19.36 points, or 1.3 percent, to 1,344.90, its highest close since last July. The SP 500 surged 2.2 percent for the week, its fifth straight week of gains. That’s the longest weekly winning stretch since January of 2011.

James Paulsen, chief investment strategist at Wells Capital Management, said the jobs report seems to be evidence that the U.S. economy isn’t as vulnerable to a shock from Europe as many had feared. If that’s true, then investors should be willing to pay more for stocks.

More evidence that the economy is gaining strength followed the jobs report. A trade group said the service industry expanded at the fastest pace since last February. The government also said factory orders rose 1.1 percent in December, supported by a rebound in orders for heavy machinery.

Bank of America led the 30 stocks in the Dow, rising 5.2 percent. Only two stocks were lower: Merck and Procter Gamble.

Treasury prices fell, lifting the yield on the 10-year note Treasury to 1.93 percent. When bond prices fall, yields rise. The benchmark 10-year rate had traded below 1.79 percent earlier this week as traders bought U.S. Treasurys on renewed concern over Europe’s ongoing debt crisis.

The U.S. jobs figures helped markets in Europe rally on Friday despite further evidence that the 17-country eurozone is heading for recession. Germany’s DAX closed 1.7 percent higher, and France’s CAC-40 gained 1.5 percent.

Worries over Europe’s debt troubles still have the potential to send markets reeling in the months ahead, Creatura said. He expects the SP 500 to continue surging but still hit patches of turbulence from Europe in the coming months.

“It’s not over yet,” he said. “Even though it appears our aircraft is taking off, you should still keep your seatbelt fastened.”

Among companies whose stocks made large moves:

• Genworth Financial soared 14 percent, the best gain in the SP 500. The insurance company reported late Thursday that it swung to a profit in the most recent quarter, helped by gains in sales of life insurance.

• Weyerhaeuser gained 5.7 percent after reporting better quarterly earnings than analysts’ forecasts. The timber and real estate company’s earnings still sank 62 percent.

• Video game maker Take-Two Interactive Software Inc. rose 3 percent. The company reported a 65 percent drop in quarterly profits after the market closed Thursday, but Wall Street’s analysts expected much worse.

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Woodruff agreed to settle without admitting or denying allegations that he and others gave investors a skewed impression of the company’s performance between 1999 and 2002, according to court documents. He would be ordered to pay a disgorgement of $1.7 million, interest of about $640,000, and a $300,000 fine under terms of a proposed final judgment.

The SEC also has agreed to dismiss similar claims against former Qwest accountant Frank Noyes, with the parties bearing their own legal costs over years of litigation.

“Mr. Woodruff is happy to put this matter behind him,” his attorneys John Carroll and Steven Glaser said in a written statement Friday.

“After six long years, Mr. Noyes has been vindicated. Vindicated at last. This is how it should have ended,” Noyes’ attorney, Forrest Lewis, said in an email.

A phone message left at the SEC office in Denver wasn’t immediately returned.

Woodruff and Noyes were the last remaining defendants in a lawsuit the SEC filed in 2005 accusing former Qwest executives and employees of fraud or insider trading. Some defendants had claims against them dismissed while others, including former Qwest CEO Joseph Nacchio, reached settlements.

The lawsuit was filed months after Qwest agreed to pay $250 million to settle SEC allegations of “massive financial fraud.”

Nacchio settled with the SEC after he was sentenced to five years and 10 months in prison for insider trading convictions in a criminal case. His criminal sentence also ordered him to pay $63.6 million in fines and forfeitures.

The SEC had alleged Woodruff misled investors by not specifying how much of the company’s revenues were from one-time sales and how much was recurring.

Noyes was accused of helping Qwest improperly record revenue for a quarterly period ending Sept. 30, 2001, by backdating a contract that was signed Oct. 1, 2001. Noyes’ attorney had said the deal was essentially done late Sept. 30, 2001, but was signed a few hours after midnight.

CenturyTel Inc. completed its purchase of Qwest last year.

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Online:

Follow Catherine Tsai at http://www.twitter.com/ctsai_denver

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The Securities and Exchange Commission on Friday announced the appointment of Jeanette Franzel, a managing director of the watchdog Government Accountability Office, to the five-member PCAOB. The board was created by Congress in 2002 in response to the corporate scandals that began with Enron.

The SEC oversees the accounting board. One of the five SEC commissioners, Luis Aguilar, voted against Franzel’s appointment. He said Franzel lacks “a demonstrated commitment” to investors’ interests, as required by the law establishing the board.

Franzel’s department at the GAO questioned in December whether companies should be required to rotate the accounting firms that audit them, something being considered by the board.

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Stock market volumes declined from the elevated levels of the prior quarter as volatility eased and investors moved to the sidelines. But the parent of the Nasdaq stock market has diversified its revenues through a number of small “bolt-on” acquisitions over the years, and has reaped the benefits.

Higher demand for its proprietary data services helped drive the company’s market data revenue up 10 percent, while market technology revenue rose 4 percent from a year earlier due to recently delivered projects.

Transaction fees, meanwhile, slipped 1 percent from a year earlier and were down 13 percent from the prior quarter.

Nasdaq, which runs U.S. and Nordic markets, earned $82 million, or 45 cents per diluted share, in the fourth quarter, down from $137 million, or 69 cents per share, a year ago.

Excluding one-time items associated with debt refinancing and merger and strategic initiatives, it earned 63 cents a share, compared to 55 cents in the year-prior quarter.

Analysts on average expected the New York-based company to earn 61 cents per share, excluding items.

Revenue rose 6 percent to $422 million, versus expectations of $417.16 million.

Nasdaq’s shares were up 1.09 percent at $25.03 on Wednesday around midday.

ANOTHER DEAL FAILS, BUT MA NOT DEAD

Nasdaq’s results were largely overshadowed by a ruling a couple of hours earlier by EU antitrust regulators blocking the merger of exchange operators Deutsche Boerse (DB1Gn.DE) and NYSE Euronext (NYX.N) on the grounds it would have lead to a near monopoly on the European futures market.

The sector has seen three other large deals fail this past year, including one in which the U.S. Department of Justice prevented Nasdaq and IntercontinentalExchange Inc (ICE.N) from buying NYSE Euronext.

Nasdaq Chief Executive Bob Greifeld said he was empathetic to what the management teams at both Deutsche Boerse and NYSE were going through, but that he does not believe the ruling will preclude other large exchange deals from happening.

“Our rejection by the DOJ and today’s rejection by the EU Competition Committee certainly sends a clear message that a transaction that results in over 90 percent market share in a pre-defined market is highly suspect,” he said on a call with analysts.

“But there is a compelling industrial logic of combining operations and technology of non-overlapping exchanges, and that will happen in the future.”

Morningstar analyst Michael Wong said that Nasdaq itself would be a prime acquisition target.

“It would give instant diversification into U.S. equities, U.S. options, European equities, and European derivatives, listings and technology, and everything else that’s in the Nasdaq OMX package,” he said.

ORGANIC GROWTH IN FOCUS, DIVIDEND EYED

Greifeld said Nasdaq would focus on organic growth, with some smaller ‘bolt-on’ acquisitions, while returning capital to shareholders through share buybacks.

He said a dividend was a matter of “when, not if,” and that it could come after the share buyback program is complete later this year.

While the quarter’s results topped expectations, one item that caught some analysts off guard was Nasdaq’s 2012 expense outlook of $955 million to $985 million.

“While initial guidance might prove to be conservative, it disappoints relative to our $940 million forecast and the $960 million Street consensus,” UBS analyst Alex Kramm said in a note to clients.

On the listings front, Nasdaq said its initial public offering pipeline is the largest it has been in more than 10 years.

For the fourth quarter, listing fees were up 2 percent as Nasdaq added 56 new listings and 16 initial public offerings, including high-profile listings like Groupon and Zynga.

Nasdaq also said companies representing over $80 billion in market capitalization, including Texas Instruments, Viacom, and Wendy’s, switched their listings to Nasdaq from other exchanges.

(This version corrects penultimate paragraph to Zynga instead of Zegna)

(Reporting By John McCrank in New York; Editing by Derek Caney, Dave Zimmerman and Gunna Dickson)

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The two exchanges announced in February 2011 that they would merge in a $10 billion deal. But the European Commission, the EU’s executive body, said the combined company would control 90 percent of the trading of some financial products in Europe.

The European decision was a blow to the combined dreams of Deutsche Boerse AG and NYSE Euronext, the NYSE’s parent company. They had hoped to compete better with other large exchanges in the U.S. and Asia.

In the U.S., the planned merger made waves because it would have meant foreign control of the storied trading floor at 11 Wall St. in New York. Despite political opposition to the deal, it got the green light from regulators in the U.S.

In Europe, however, the regulatory discussions revolved around control.

Some hoped the deal would boost Frankfurt’s status as a financial center that would compete with New York, Hong Kong and London. But regulators worried that it would create a financial behemoth.

The timing of the deal also played a role. Regulators are under great pressure to increase oversight of the financial sector as Europe tries to resolve the huge debt loads of its countries. Adding a complex institution would add to the regulatory burden.

The commission said it would block the deal because the combined company’s dominance of the market would have made it almost impossible for competitors to offer rival trading systems.

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