Stocks gained ground on Friday after a mixed payrolls report failed to rattle investors as U.S. job losses in August were the smallest in a year, although 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. Economists 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.

There's huge concerns with the employment picture, said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati, Ohio. Those concerns are factored into the market and absent any major negative surprise, that gives reason for market participants to bid equities higher.

Analysts said reduced trading volumes due to fewer investors before the U.S. Labor Day holiday weekend could add to volatility. As of 12:58 p.m. EDT, only 470.6 million shares had changed hands on the New York Stock Exchange.

The Dow Jones industrial average <.DJI> gained 78.74 points, or 0.84 percent, to 9,423.35. The Standard & Poor's 500 Index <.SPX> rose 10.36 points, or 1.03 percent, to 1,013.60. The Nasdaq Composite Index <.IXIC> climbed 29.16 points, or 1.47 percent, to 2,012.36.

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 2.1 percent.

Helping boost chip makers was Novellus , which rose 1.5 percent to $19.36 after the semiconductor manufacturing tool maker lifted its forecasts for the current quarter.

There is no question that the large-cap tech names have been giving the market an underpinning, a well-bid condition, said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey.

In lieu of the fact that there is no one around to sell the market, a well-bid condition is supporting the bias higher.

(Editing by Jan Paschal)