Stocks End Mostly Higher

Major indexes clawed their way back from an early selloff after a weak U.S. jobs report raised fresh concerns about a recession

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The world's best tennis players have been serving up some sizzling volleys at this week's U.S. Open at Flushing Meadows. But for the real head-turning, back-and-forth action on Friday, investors could focus their attention just a few miles away: Wall Street.

Major U.S. equity indexes finished mostly higher on Friday, staging an impressive comeback from early lows after extending a sell-off in the previous session that saw each of the major market benchmarks lose at least 3%. The market's suspicions of accelerating weakness in the U.S. labor market, a big factor in Thursday's declines, were confirmed by the release Friday of the U.S. employment report for August, which showed a surprising jump in the U.S. jobless rate to 6.1% from 5.7% in the previous month.

Bonds reversed to the downside as the U.S. dollar index bounced back in a surge of strength despite earlier worries that the negative jobs data could place the Fed under pressure to ease credit. Gold futures were higher in a flight to safety. Oil futures were lower.

On Friday, the Dow Jones industrial average rose 32.73 points, or 0.29%, to close at 11,220.96. The broader S&P 500 index gained 5.48 points, or 0.14%, to end at 1,242.31. And the tech-heavy Nasdaq composite index edged down 3.16 points, or 0.14%, to 2,255.88.

On the New York Stock Exchange, 16 stocks traded higher for every 15 that posted losses, while on the Nasdaq the ratio was 15-13 negative, with financials among the day's best performers. Market players spoke of hedge fund unwindings and some technical selling, but short covering was helping to pare earlier losses, according to S&P MarketScope.

Traders were also watching a developing story that hit the newswires after the closing bell Friday. According to a Wall Street Journal report, the Treasury Dept. is close to finalizing a plan to help shore up mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), according to people familiar with the matter. The plan is expected to involve a creative use of Treasury's new authority to make a capital injection into the beleaguered giants, according to the Journal, and includes changes to senior management at both companies.

Given how bereft Friday's jobs report was of anything hopeful, and considering that the slide in stocks started on Tuesday, "the fact that the slide continued, in my mind, was appropriate," says Phil Orlando, chief equity market strategist at Federated Investors in New York. "What caused this change in psychology? Did the market pull back to the point where everything was discounted? Not in my mind."

A weak payrolls report for August weighed on U.S. equity market sentiment following losses in global equities overnight. The unemployment rate jumped 0.4 to 6.1% in August, as payrolls fell another 84,000. The drop in payrolls was roughly in line with the consensus estimate of 71,000, but the consensus estimate was for a flat unemployment rate at 5.7%. Manufacturing lost 61,000 jobs in August (44,700 in transportation equipment). Construction fell 8,000. Services employment fell 27,000, with a 61,600 drop in administrative and support services. The rise in the unemployment rate was entirely in adults - the teenage rate dropped sharply as teens returned to school. Average hourly earnings rose 7 cents (0.4%), a slight acceleration from recent 0.3% trend, and is up 3.6% from a year earlier, compared with 3.4% in July.

"The data are more confirmation that this is a recession. The wage acceleration, although slight, could also cause some nervousness at the Fed," wrote S&P Economics in a note Friday.

"[T]he persistent weakness in job growth and the continued rise in the unemployment rate will clearly cap talk of Fed tightening at the two pre-election FOMC meetings," wrote Action Economics analysts in a website posting Friday.

While the market initially struggled with "unemployment data getting close to recessionary levels"