Stocks jumped in light trading Friday as investors looked past a jump in the nation's unemployment rate and focused on a drop in the number of layoffs as a reason to push stocks higher.
The Dow Jones industrial average gained 97 points Friday to halve its loss for the week after the Labor Department said employers cut fewer workers last month. However the report also showed that the ranks of the unemployed swelled to 9.7%, the highest level since June 1983.
Analysts had been expecting the rate to increase to 9.5% after unexpectedly dipping in July. The increase initially spooked the market, but stocks later recovered their losses and moved higher. Many economists expect the rate to top 10% by early next year.
The Labor Department report found that employers cut 216,000 jobs last month, fewer than the 276,000 lost in July and better than the 225,000 figure analysts had been expecting. It was the lowest level of job losses since August 2008, and traders said it was an encouraging sign that the labor market could be righting itself.
"The overall picture is things are getting better," said Ryan Larson, senior equity trader at Voyageur Asset Management.
Rising unemployment is widely seen as the economy's biggest hurdle to recovery, and concerns about it have been weighing on the stock market. As long as job losses remain high, consumers won't feel comfortable about spending money, which the U.S. economy badly needs in order to resume growth.
"The market is looking at directional changes, and so at this state of the economic recovery I think the fact that you see unemployment rising shouldn't be that surprising," said Thomas K. R. Wilson, managing director, institutional investments group, Brinker Capital in Berwyn, Pennsylvania.
Analysts said that the thin trading volume before the long holiday weekend made it difficult to conclude that a shift in investor sentiment was occurring. Markets will be closed on Monday for Labor Day.
Stock trading has been erratic over the past few weeks as a six-month rally slowed on worries that the market's rise of more than 50% since March has been overdone.
The Dow rose 96.66, or 1%, to 9,441.27. The Standard & Poor's 500 index rose 13.16, or 1.3%, to 1,016.40, while the Nasdaq composite index added 35.58, or 1.8%, to 2,018.78.
Four stocks rose for every one that fell on the New York Stock Exchange, where volume came to a relatively low 1.1 billion shares, compared with 1.2 billion Thursday.
For the week, the Dow fell 1.1%, the S&P 500 index lost 1.2% and the Nasdaq slipped 0.5%.
Some analysts said the market appeared to be overreacting to the jobs report. Dan Cook, senior market analyst at IG Markets in Chicago, said the economy isn't strong enough to support the market at its current levels.
"Employers are not going to be looking to add to staffs any time soon," Cook said.
There were signs that investors were becoming less fearful after a four-day slide in stocks that ended Thursday. The drop included a 186-point plunge on Monday that came on fears of worries about the health of banks and the overall economy.
Demand for the safety of government debt fell, pushing yields higher. The yield on the benchmark 10-year Treasury note rose to 3.45% from 3.35% late Thursday.
The Chicago Board Options Exchange's Volatility Index — known as the market's "fear index" — fell 6.8% to 25.3. It's down 36.9% in 2009 and its historical average is 18-20. It surged to a record 89.5 in October at the height of the financial crisis.
Analysts said a test of the market will come later in the month as traders return from vacation and raise more questions about whether investors have bet too soon the economy's ability to recover.
In downturns in the past 60 years, the S&P 500 index has reached a bottom an average of four months before a recession ended and about nine months before unemployment reached its peak. The index, which is the basis of many mutual funds, hit a 12-year low in March.
Some traders are also concerned about the market's track record for September, which has been the worst month for stocks over the past 80 years. Since 1929, the S&P 500 index has lost an average 1.3% during the month. But the index has gained about 2% in the 14 Septembers that followed the end of bear markets.
In other trading, the dollar was mixed against other major currencies, while gold prices retreated after hitting a six-month high of near $1,000.
The Russell 2000 index of smaller companies rose 8.01, or 1.4%, to 570.50.