Stocks rose moderately on Friday after a mixed payrolls report that showed U.S. employers cut fewer-than-expected jobs in August even as the unemployment rate hit a 26-year high.

The Labor Department said the unemployment rate rose to 9.7 percent, though the decline in payrolls was the smallest in a year at 216,000. Analysts in a Reuters poll had forecast 225,000 job cuts. Wall Street views a rebound in the labor market as a key component to a recovering economy.

I get the sense there was kind of mixed feelings about unemployment, said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania. At the end of the day, you've got something to yawn at when, in fact, it was anticipated to be the biggest announcement of the week.

Analysts said reduced trading volumes due to fewer investors before the U.S. Labor Day holiday weekend could add to volatility. As of 11:52 a.m. EDT, a mere 358.4 million shares had changed hands on the New York Stock Exchange.

The Dow Jones industrial average <.DJI> gained 27.05 points, or 0.29 percent, to 9,371.66. The Standard & Poor's 500 Index <.SPX> rose 4.28 points, or 0.53 percent, to 1,007.52. The Nasdaq Composite Index <.IXIC> added 10.88 points, or 0.55 percent, to 1,994.08.

Semiconductor stocks rose after Intel's chief executive said in an interview with the Financial Times that aging PC's and Microsoft's launch of Windows 7 will prompt companies to start spending on computers next year.

The PHLX semiconductor index <.SOXX> rose 1.1 percent.

Helping boost chip makers was Novellus , which rose 1.3 percent to $19.33 after the semiconductor manufacturing tool maker lifted its forecasts for the current quarter.

Oil futures slipped below $68 a barrel and gold fell below $990 an ounce, retreating after the biggest two-day gain for the metal since March.

The S&P Energy Index <.GSPE> added 0.5 percent.

(Editing by Jan Paschal)

Pennsylvania Unemployment