US STOCKS-Wall St up for fourth week as payrolls jump

* S&P up for fourth week, hits 3-month high

* Knight up in volatile trading as company fights to survive

* Indexes up: Dow 1.7 pct, S&P 1.9 pct, Nasdaq 2 pct (Updates to close, changes byline)

By Rodrigo Campos

NEW YORK, Aug 3 (Reuters) - Wall Street rallied to its highest level since early May on Friday on a stronger-than-expected U.S. jobs report and renewed hope European authorities would act to contain the euro zone debt crisis.

Though European Central Bank President Mario Draghi disappointed investors on Thursday by not signaling immediate action to roll back the euro zone crisis, investors taking a second look at his comments concluded help might still be on the way.

Meanwhile, U.S. employers hired the most workers in five months in July, countering negative sentiment from several weeks of poor U.S. economic data. However, the figures were still not so strong that they would keep the Federal Reserve from providing more economic stimulus.

"They're not going to stand down, but they don't have to be as ready to go as they were a few days ago," said John Manley, chief equity strategist at Wells Fargo Funds Management in New York, adding that the data dispelled some of investors' worst fears about the economy.

"People got very worried over the last weeks  but it looks like the U.S. economy is not falling off the face of the earth."

Bank shares, which would be among those to benefit the most from an improving economy, posted strong gains and financials was the best performer of the top 10 sectors of the S&P 500.

Knight Capital shares rose 57 percent to $4.05 as some major clients said they would resume trading with the embattled company. Knight lost $440 million after a software glitch flooded the stock market with errant trades on Wednesday. The weekly loss for the stock was about 60 percent.

The Dow Jones industrial average rallied 217.29 points, or 1.69 percent, to 13,096.17. The S&P 500 jumped 25.99 points, or 1.90 percent, to 1,390.99. The Nasdaq Composite added 58.13 points, or 2 percent, to 2,967.90.

The S&P 500 had fallen more than 1.5 percent in the past four sessions as investor hopes for central bank stimulus measures faded. For the week, the Dow rose 0.2 percent, the S&P gained 0.4 percent and the Nasdaq rose 0.3 percent.

It was the fourth straight week of gains for the S&P and Dow and the third for the Nasdaq.

The European Central Bank indicated on Thursday it may start buying government bonds again to reduce crippling borrowing costs for Spain and Italy, even if its head Mario Draghi indicated that any intervention would not come before September.

Traders said Friday Draghi's comments meant that new stimulus measures could arrive soon, giving a boost to the battered Spanish and Italian equity markets and lifting U.S. equity futures even before the payrolls report.  The pace of growth in the vast U.S. services sector edged up in July as new orders gained, but a measure of employment fell to its lowest level in nearly a year, according to an industry report released on Friday.

Dow component Procter & Gamble Co advanced 3.1 percent to $65.50 after the world's largest household products maker posted a higher-than-expected quarterly profit and said it would repurchase $4 billion worth of its shares this fiscal year.

LinkedIn Corp jumped 16 percent to $108.51 after the professional networking site reported higher-than-expected revenue and raised its full-year outlook as it pocketed more money from subscribers, services aimed at businesses and advertising.

According to Thomson Reuters data, of the 402 companies in the S&P 500 that have reported second-quarter earnings through Friday morning, 68 percent have beaten analysts' expectations, which is consistent with the past four quarters.

About 6.5 billion shares changed hands on the New York Stock Exchange, NYSE MKT and the Nasdaq, slightly below the daily average so far this year of 6.75 billion.

Advancing issues beat decliners by a ratio of almost 5 to 1 while on the Nasdaq more than three issues rose for every one that fell.

(Editing by Kenneth Barry)