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Stock exchange traded funds rallied on Thursday before the week’s big economic number — September’s nonfarm payrolls report.

SPDR S&P 500 ETF (NYSEARCA:SPY) was up 1.6% in late-afternoon trading. The fund is in positive territory for the week and could see big moves Friday after the highly anticipated employment report.

Stocks have bounced this week while the most recent sentiment data shows the largest spread favoring the bears since March 2009. Equity ETFs are on a big three-day winning streak with the S&P 500 posting gains of at least 1% the past three sessions.

Some technical analysts think stocks have made a key reversal this week after falling 20% from their 2011 high, MarketWatch’s Mark Hulbert reports.

The key question for investors is whether the recent bounce marks a real bottom or just a pause in the downdraft. Friday’s jobs report could provide a clue.

“A countertrend equity rally has emerged, following encouraging U.S. economic reports, the prospects of ring-fencing the EU sovereign debt crisis, and an excess of pessimism. Investors are now asking if they should buy or sell into this rally,” said Standard & Poor’s Investment Policy Committee in a note.

Looking ahead to Friday’s data, economists expect the U.S. economy added 65,000 jobs in September, according to consensus estimates from Bloomberg. Non-farm payrolls were unchanged in August.

In the bigger picture, bulls are hoping stock ETFs can finish 2011 strong after a string of down quarters.

“History shows (but does not guarantee) that an oversized price decline in one quarter is typically followed by a sharp advance in the next. Also, expectations surrounding Friday’s payroll report and third-quarter earnings are now quite low, in our opinion, possibly offering this rally the catalyst for near-term propulsion,” S&P said. “Yet we believe this rally will be short-lived as prices encounter chart resistance, just as the leveraging of the European Financial Stability Facility is expected to face German resistance.”

SPDR S&P 500

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Disclosure: Tom Lydon’s clients own SPY.

Source: Equity ETFs Rally Before Jobs Report