Wall St's fear meter falls on strong jobs report

CHICAGO (Reuters) - The Chicago Board Options Exchange Volatility Index .VIX, Wall Street's main pulse of investor sentiment, fell on Friday as a strong jobs report relieved investors' concerns about the stock market's performance in October.

The stock market's crash of 1929 and its plunge in 1987 both occurred in October -- facts that can make investors wary of the outlook for U.S. equities during the month.

"The VIX is showing that investors feel a lot more comfortable about the economy and the stock market in general since the Federal Reserve lowered interest rates on Sept 18," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.

The widely watched fear gauge, often called the VIX, slid 8.30 percent to close on Friday at 16.91 -- a sign that participants have become more optimistic about current stock levels.

"We now have gotten past one major economic hurdle with the jobs report out, but we have another obstacle with the upcoming Federal Reserve meeting on interest rates in the next few weeks," said Joe Kinahan, chief derivatives strategist for online brokerage thinkorswim.com in Chicago.

October also marks the onset of earnings season, which can always bring surprises.

"So I don't think we are out of the woods yet for this year, Kinahan said.

U.S. stocks surged on Friday after the Labor Department report showed the economy added more jobs in September than economists had forecast. In addition, August and July jobs figures were revised higher, a change analysts said was even more significant.

REDUCTION IN RISK SEEN

The unemployment rate, which is compiled from a separate survey, rose to 4.7 percent in September from 4.6 percent in August.

"Everybody thinks that this unemployment report was very positive and could possibly lead to another rate cut by the Fed," said Herb Kurlan, president of Vtrader Pro, an online trading firm in San Francisco.

It had the effect of dissipating downside concerns.

"Risk perceptions have eased," he said.

The VIX, which measures near-term volatility conveyed by Standard & Poor's 500 index .SPX option prices, has been on a downward path since the central bank's September 18 decision to slash interest rates by 50 basis points.

On that date, the VIX -- which generally runs opposite to the market -- plunged more than 20 percent as U.S. stocks rallied on the Fed's unexpectedly large rate cut.

"That rate cut helped restore investor confidence," said Peter Dunay, investment strategist at Leeb Capital Management, a New York fund.

Subsequent gains in the U.S. equity markets have now kept the VIX mostly below 20, which in effect brings down options prices.

"Investors are not as concerned about a major market decline now, so they have become more selective about the prices they are willing to pay for options to protect their portfolios," Dunay said.

The Federal Reserve's policy-making committee next meets on October 30-31.