* October payrolls well above expectations
* Disney up after profit beats estimates
* Santarus jumps on buyout deal, acquirer Salix also up
* Indexes up: Dow 0.5 pct, S&P 0.9 pct, Nasdaq 1.4 pct
By Rodrigo Campos
NEW YORK, Nov 8 (Reuters) - U.S. stocks jumped on Friday, bouncing back from a selloff in the previous session after an unexpectedly strong payrolls report lent weight to views the world's largest economy is stronger than previously thought.
Futures had fallen immediately after data showed 204,000 new jobs were created last month, much more than the expected 125,000, as it increased chances the Federal Reserve could scale back its stimulus before the end of the year.
Some market participants are, however, looking past the Fed taper and focusing on what the prospect of a better economy will mean for equities.
"The first part of the equation for the Fed to taper is data showing the economy is getting better. If companies are doing well and business is good, you don't need to have zero percent short-term money in order for the stock market to do well," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.
The strong data also sent U.S. Treasuries prices lower, lifting the benchmark 10-year yield to its highest in more than three weeks. A four-month rally in yields earlier this year pressured stocks, but the recent strong data has eased concerns over higher borrowing costs.
"Most people in the market believe in the next couple years the 10-year yield will return to a 3-to-4 percent level, and a market trading at 17 times earnings is cheap still, in that environment," Kuby said.
The most recent trailing price-to-earnings ratio on the S&P 500 is 16.2 according to Thomson Reuters data, with the forward P/E at 14.8.
The Dow Jones industrial average rose 82.45 points or 0.53 percent, to 15,676.43, the S&P 500 gained 14.88 points or 0.85 percent, to 1,762.03 and the Nasdaq Composite added 52.918 points or 1.37 percent, to 3,910.25.
Financial stocks led gains on the S&P 500 with a 1.6 percent advance, following a more than 1 percent drop in the sector on Thursday, on the expectation that higher rates will translate into stronger earnings.
JPMorgan Chase added 3 percent while Wells Fargo , Bank of America and Citigroup were up more than 2 percent.
Those higher interest rates could also mean fewer home buyers as mortgage rates rise, and stocks of homebuilders fell. Shares of Lennar, Ryland Group and Pulte Homes fell more than 4 percent each.
Apparel retailer Gap's shares led percentage gains on the S&P 500 with a 7.8 percent advance, a day after it said October same-store sales rose 4 percent, well ahead of the analysts' average estimate of 0.1 percent.
Santarus Inc surged 37.8 percent to $32 after Salix Pharmaceuticals Ltd agreed to buy the drugmaker for about $2.6 billion. Salix shares jumped 16.3 percent to $82.96.
Disney shares rose 3 percent to $69.14 after its profit jumped to beat Wall Street expectations, lifted by higher visitor spending at U.S. theme parks, increased consumer product sales and its summer animated movie hit "Monsters University."
Other economic data showed consumer spending rose 0.2 percent after advancing 0.3 percent in August, in line with expectations.
The Thomson Reuters/University of Michigan's preliminary reading on consumer sentiment fell to 72.0 in November, its lowest since December 2011 and below both October's final reading of 73.2 and the 74.5 forecast.