Prices rose smartly on Wall Street today as traders were pleasantly surprised by the government's report that inflation and the economy aren't running rampant after all.

The government's monthly employment report helped ease investors' concerns that the Federal Reserve might soon raise interest rates to slow the economy.

Bargain hunting that followed the recent sell-off on Wall Street also contributed to today's gains, as the Dow Jones industrial average rose 136.15 points to close at 10,799.84, adding to an 85-point gain on Thursday. For the week, the Dow was up 240.10 points.

Broader stock indicators were also higher. The battered Nasdaq composite index rose 75.02, to 2478.34, its fifth-largest point gain ever. The Standard & Poor's 500-stock index rose 28.21, to 1327.75.

The Labor Department reported that the nation's unemployment rate dipped to a 29-year low of 4.2 percent in May. But investors seemed to be particularly impressed by the fact that only 11,000 jobs were created last month, far below the 225,000 expected by economists and possibly a sign that the economy is growing moderately.

Another indicator closely watched for signs of inflation, average hourly earnings, was up 3.6 percent in May compared with a year ago, only a slight increase from a 3.2 percent increase the month before.

Both factors apparently reduced concerns among investors that the Fed will soon raise rates to slow an economy that is threatening to overheat. The central bank warned May 18 that it would raise rates if it determined that inflation was gaining momentum.

Today brought the Nasdaq its strongest gain since April 21 as investors swooped in looking for bargains. Cisco Systems, up 6-1/16, to 114 7/8, and Yahoo, up 12-1/16, to 147-7/16, led a wide rally.

On the New York Stock Exchange, America Online rose 12, to 117 3/4. AOL got a boost from a court ruling that AT&T must provide open access to its cable lines. By contrast, AT&T slipped 7/8, to 53 3/8. At Home, which has access to AT&T's cable properties, dropped 10 3/4, to 94 1/2.

Advancing issues outnumbered declining ones by 8 to 5 on the New York Stock Exchange, where consolidated volume came to 694.6 million shares, down from 733.3 million in the previous session.

The NYSE composite index rose 10.32, to 634.52; the American Stock Exchange composite index rose 5.04, to 780.98; and the Russell 2000 index rose 6.35, to 442.33.