Stocks held gains after investors digested August jobs data that was largely better than expected, but still offered reason for concern, and news that service sector activity grew less than forecast.
The Dow Jones Industrial Average rose more than 55 points, led by JP Morgan , Caterpillar ,and Cisco. Verizon and McDonald's fell.
The S&P 500and the Nasdaqalso rose. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 23.
Financials, technology and industrial stocks led the S&P 500, while telecom stocks fell.
Non-manufacturing in the U.S. grew less than forecast, according to the Institute for Supply Management. The industry group's index of national services activity fell to 51.5 in August, the second lowest level for the year. The survey of services activity was expected to show a slight decline, after July's rise to 54.3.
Earlier, the government reported August nonfarm payrollsfell 54,000 jobs in August, far less than the anticipated 100,000 decline. The unemployment rate rose to 9.6 percent. Private payrolls gained 67,000 jobs, better than the 41,000 expected.
"I think traders are paying attention to the fact we are still losing jobs, and there doesn’t seem to be a clear strategy on how to create jobs," said Todd Schoenberger, managing director at LandColt Trading.
Investors also may have tempered initial enthusiasm for the jobs data once they realized the figures were not good enough to signal a broad jobs recovery and weren't bad enough to prompt the Federal Reserve to act with more stimulus, Schoenberger said.
"They need real factual evidence to validate any type of move that they are going to do," he said.
Although private sector payrolls rose far more than the 35,000 forecasted by Scott Brown, chief economist at Raymond James & Associates, the boost was "well below that 135,000 or so that we need to keep pace with the growth of the working-age population," Brown said.
One encouraging sign is temp-help payrolls rose 17,000, meaning employers may be willing to hire fulltime workers in the near future. Temp-help payrolls had stalled in June and July after averaging a monthly gain of 45,000 from October to May, he said.
"It's still suggesting more of the same — positive job growth, but not especially strong," he said.
Also in economic news, Atlanta Federal Reserve President Dennis Lockhart will discuss the economic outlook when he speaks in Johnson City, Tenn.
Among technology stocks, Google shares rose after a report by Reuters the company is planning to enter the music business, heating up competition with Apple .
Hewlett-Packard shares edged higher a day after it officially beat rival Dell in the bidding war to acquire data storage company 3Par. Dell could spend the $2 billion it planned to use to buy 3Par to go after smaller technology companies, analysts said.
Video game stocks got a boost when Take-Two Interactive raised its forecast for the fourth quarter thanks to a boost in sales for its "Red Dead Redemption." Take-Two's shares soared more than 10 percent. Activision Blizzard and Electronic Arts were also higher.
In other news, Mattel shares fell sharply in premarket tradingFriday and then recovered an hour later. The reasons for the big drop are unknown.
Campbell Soup fell although the company announced earnings of 33 cents per share, three cents ahead of analyst estimates.
Mariner Energy's shares recovered a day after an oil and gas platform the energy company operated in shallow Gulf Coast waters burst into flames. The Coast Guard said oil does not appear to be leaking from the platform.
In other markets, the jobs news prompted investors to leave the safety of gold as well as Treasury securities, but boosted shares in Europe, which closed higher.
Meanwhile, BP said the cost of dealing with the Gulf Oil spill rose to $8 billion. The oil giant is also planning to release findings of an internal probe into the causes of the disaster.
Hurricane Earl pounded parts of the East Coast of America with wind, rain and surf after weakening slightly to a Category 4 storm.
On tap next week:
MONDAY: Markets closed for Labor Day.
TUESDAY: Three-year Treasury note auction; after-the-bell earnings from Phillips-Van Heusen.
WEDNESDAY: MBA mortgage applications, 10-year Treasury note auction, Fed Beige Book release, Fed's Kocherlakota speaks, consumer credit; before-the-bell earnings from Smithfield Foods.
THURSDAY: New York Fashion Week begins, McDonald's August sales, jobless claims, 30-year Treasury bond auction.
FRIDAY: Wholesale trade data
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