* U.S. economy sheds jobs for a fourth straight month
* Blue-chip Dow above 11,000 for first time since May 4
* Agricultural sector rallies on USDA corn crop forecast
* Dow up 0.5 pct, S&P up 0.5 pct, Nasdaq up 0.6 pct (Updates to early afternoon)
By Angela Moon
NEW YORK, Oct 8 (Reuters) - The Dow rose above the psychologically important 11,000 mark for the first time since May on Friday as a weaker-than-expected jobs report increased expectations that the Federal Reserve will take more action to spur the U.S. economy.
The Fed's hint that it may do more quantitative easing has commanded the attention of equities investors in recent weeks. On Thursday, investors actually took a better-than-expected weekly jobless claims data as a bad sign for the market.
"The twisted irony is this should be perceived as a negative, but Wall Street is banking on heavy Fed involvement to help push stocks higher for the rest of the year. The result could be an increase in risk appetite for equities and a move away from 'safer' and tangible investments like Treasuries and gold," said Todd Schoenberger, managing director of Landcolt Trading LLC in Wilmington, Delaware.
The Dow Jones industrial average rose 56.42 points, or 0.52 percent, to 11,005.00. The Standard & Poor's 500 Index added 5.84 points, or 0.50 percent, to 1,163.90. The Nasdaq Composite Index advanced 13.84 points, or 0.58 percent, to 2,397.53
Machinery, fertilizer and meat producer stocks surged in sync with U.S. corn and soybean futures after the U.S. Department of Agriculture said the corn crop is likely to be far smaller than expected. The belief is that U.S. grain farmers will use some of their profits from higher crop prices to buy new tractors and harvesting equipment.
A construction and farm machinery sector index rose 3.4 percent. Deere & Co shares climbed 6.1 percent to $76.31, Agco Corp jumped 9.1 percent to $42.77 and Terex Corp advanced 3 percent to $24.46.
As the government's non-farm payrolls report increased the likelihood of another round of quantitative easing from the Fed, the dollar weakened while commodity prices rose.
The Reuters Jefferies CRB index, which covers 19 mostly U.S.-traded commodities, rose 2.7 percent.
Freeport-McMoRan Copper & Gold Inc gained 4.4 percent to $95.45, while the S&P Materials index shot up 2.2 percent.
Options traders also remained confident about the market as the volatility index continued to slide.
The CBOE Volatility index, Wall Street's favorite fear gauge, fell 5.2 percent to 20.44, the lowest since May.
With traders still believing that quantitative easing was on the way, the S&P 500 did not escape its recent tie with the euro, shifting as the single currency swings. The euro erased gains against the dollar in early New York trade.
"There is a very direct correlation -- even on the intraday basis, the traders just key on what the dollar is doing," said Terry Morris, senior vice president and senior equity manager of National Penn Investors Trust Co in Reading, Pennsylvania.
Jean-Claude Juncker, the chairman of euro-zone finance ministers, said the euro's exchange rate against the dollar was too strong at $1.40 as the dollar did not reflect U.S. economic fundamentals. The U.S. dollar slid to a 15-year low against the Japanese yen. (Reporting by Angela Moon; Additional reporting by Doris Frankel; Editing by Jan Paschal)