* Nonfarm payrolls up 223,000; jobless rate near 7-yr low
* S&P 500, Dow up for the week; Nasdaq down slightly for week
* Microsoft jumps on news it's not pursuing Salesforce
* Indexes end higher: Dow 1.5 pct, S&P 1.4 pct, Nasdaq 1.2 pct (Updates to close, adds comment, closing levels)
By Noel Randewich
May 8 (Reuters) - U.S. stock indexes ended more than 1 percent higher on Friday after strong jobs data indicated U.S. economic growth was picking up momentum, but not enough to raise concerns about an earlier-than-expected interest-rate rise by the Federal Reserve.
U.S. job growth rebounded last month and the unemployment rate dropped to a near seven-year low, suggesting underlying strength in the economy at the start of the second quarter after growth hit a soft patch in the first.
"The market loved the jobs report. Couldn't have been better," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago. "It wasn't a strong enough number to prompt any concern by the Fed."
Nonfarm payrolls in April increased by 223,000, just below expectations, while the unemployment rate dropped despite more people entering the job market. Tempering that good news, March payrolls were revised downwards to show only 85,000 jobs created, the fewest since June 2012.
"The revision to last month is certainly significant. I think this is consistent with most of the data that has been coming out. The economy is slowing a bit, job creation is slowing a little bit," said Uri Landesman, president of Platinum Partners in New York.
Capping off a week of choppy trading that saw investors fretting about valuations and increasingly focused on interest rates, the Dow Jones industrial average rose 267.05 points, or 1.49 percent, to end at 18,191.11.
The S&P 500 gained 28.10 points, or 1.35 percent, to 2,116.10 and the Nasdaq Composite added 58 points, or 1.17 percent, to 5,003.55.
The last time all three indexes gained more than 1 percent in a session was on May 1.
For the week, the Dow was up 0.9 percent, the S&P 500 was up 0.4 percent and the Nasdaq was down 0.04 percent.
For six years, ultra-low borrowing costs have fueled stock gains and market participants have wondered how the U.S. market, which is trading at historically expensive valuations, will fare once the Fed begins raising interest rates.
The S&P 500 is trading at 17 times expected earnings, compared to its 10-year median average of 15, according to StarMine data.
The Dow is 0.53 percent short of its all-time high close set in early March and the S&P 500 is 0.08 percent below its record high close set in April. The Nasdaq is 1.74 percent lower than its record close on April 24.
Next week, labor expenses will be a key focus as big retailers, including Macy's, Nordstrom Inc and Kohl's Corp post quarterly results.
On Friday, all the 10 major S&P 500 sectors posted strong gains, led by a 1.62 percent jump in the health index.
Microsoft rose 2.25 percent to close at $47.75 after Reuters reported that the company was not weighing an offer for Salesforce.com. Salesforce.com fell 2.85 percent to $72.40.
AOL surged 10.23 percent to end at $43.42 after reporting revenue above analysts' expectations.
Advancing issues outnumbered declining ones on the NYSE by 2,468 to 604, for a 4.09-to-1 ratio on the upside; on the Nasdaq, 1,737 issues rose and 1,023 fell for a 1.70-to-1 ratio favoring advancers.
The S&P 500 posted 23 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 71 new highs and 42 new lows.
About 6.6 billion shares changed hands on U.S. exchanges, below the 6.8 billion daily average for the last five sessions, according to BATS Global Markets. (Additional reporting by Tanya Agrawal; Editing by Bernadette Baum and Nick Zieminski)