Stocks rally into close; Record finish for S&P 500

U.S. stocks erased losses and rose on Friday, with benchmark indexes extending gains into a fifth week, as investors detoured around a surprisingly disappointing jobs report.

The number of jobs created "was way under what they anticipated, but the unemployment rate countered that," Stephen Carl, head equity trader at the Williams Capital Group, said of the Labor Department's report, which had nonfarm payrolls adding just 142,000 jobs even as the jobless rate declined to 6.1 percent. Economists had expected payroll growth of 225,000 last month.

Read MoreDon't believe weak August jobs data: Economists

"This number is already out, and nobody knows what to make of it, so let's trade on the stuff we understand," said JJ Kinahan, chief strategist at TD Ameritrade in Chicago.

"Can we break through 2,000 on the S&P, will (10-year Treasury note) rates challenge 2.5 percent," said of technical and psychological levels viewed as resistance for traders.

The argument could also be made that the disappointing August jobs tally calmed concerns about the Federal Reserve removing stimulus sooner rather than later, with the Fed measuring the health of the jobs market as it tapers bond purchases and mulls the timing of interest-rate hikes.

Boston Federal Reserve Bank President Eric Rosengren bolstered that view on Friday, saying in prepared remarks that the Fed should be patient in cutting stimulus given the "significant" slack in the labor market.

"With respect to the market, the rally in the S&P futures off a big miss still reflects the drug junkie attitude of anything that backs off the Fed is somehow good," emailed Peter Boockvar, chief market analyst at the Lindsey Group.

"For those that are saying the Fed should rush to get out of bond buying, this might take away a little of that argument," said Kinahan.

"You know how the housing numbers are so confusing? So throw the jobs number in the same pile; initial claims, ADP, you usually get some signal, and there was nothing in any of those reports that would make you think we'd get a number this bad," said Kinahan, chief strategist at TD Ameritrade in Chicago.

The one positive aspect of the monthly report is employment gains came in business services, health care and construction, areas were "careers are being created," as opposed to stepping-stone positions like "working at Kmart or tending bar," Kinahan said.

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After a 59-point fall, the Dow Jones Industrial Average rose 67.78 points, or 0.4 percent, to 17,137.36, leaving it with a weekly gain of 0.2 percent and less than a point from its record close of 17,138.20, set July 16. Nike led blue-chip gains that extended to 22 of 30 components.

Energy paced gains among the 10 major industry groups on the S&P 500, up 10.06 points, or 0.5 percent, to 2,007.71, and 0.2 percent higher than the week-ago close.

The weekly win streak is the longest since November for the Dow and S&P.

Gap fell 4.2 percent after the clothing retailer tallied same-store sales for August that missed expectations; Apple gained 0.9 percent ahead of the consumer technology company's anticipated debut in the market for wearable accessories. Tesla Motors dropped 3 percent after CEO Elon Musk described the electronic-car company's stock price as "kind of high right now," at least while viewed in the short term.

The Nasdaq gained 20.61 points, or 0.5 percent, to 4,582.90, up nearly 0.1 percent from the week-ago close.

The CBOE Volatility Index, a measure of investor uncertainty, reversed lower, off 4.4 percent at 12.09.

For every three stocks that fell, roughly five gained on the New York Stock Exchange, where nearly 610 million shares traded. Composite volume topped 2.8 billion.

NYSE New York Stock Exchange traders markets
Brendan McDermid | Reuters

Ukraine and pro-Russian separatists agreed to a truce after months of bloodshed as U.S. and European officials considered further sanctions against Russia for its part in the conflict.

"It's always a factor, but you never know what the real scenario is," said Carl of the geopolitical concern.

The dollar edged higher against the currencies of major U.S. trading partners; the yield on the 10-year Treasury held steady at 2.454 percent.

On the New York Mercantile Exchange, gold futures for December delivery wavered before ending up 80 cents at $1,267.30 an ounce, and crude-oil futures for October declined $1.16, or 1.3 percent, to $93.29 a barrel.

On Thursday, stocks erased record-setting gains, turning lower in a late-session shift as cheer over the European Central Bank's unexpected rate cut faded, a day ahead of the monthly payrolls report.

Read MoreStocks end lower; caution before jobs report