By Corrie Driebusch 

U.S. stocks finished the week higher after the August jobs report showed hiring slowed in a month racked by trade threats, likely keeping the Federal Reserve on track to cut interest rates again later this month.

The report underscored the delicate balance facing markets in recent months. Investors are on one hand deeply uneasy about signs economies around the world are slowing. Any threats to growth, be it from rising tariffs to political instability, can send markets reeling.

On the other hand, signs of slowdown are often met with central bank interference, such as the Fed cutting short-term interest rates -- a boon for shares of U.S. companies.

Investors wrestled with those competing dynamics Friday, sending the Dow Jones Industrial Average up 69.31 points, or 0.3%, to 26797.46. The S&P 500 rose 2.71 points, or 0.1%, to 2978.71. Weakness among technology companies dragged the tech-heavy Nasdaq Composite down 13.75 points, or 0.2%, to 8103.07. All three indexes ended the week up at least 1.5%.

The Labor Department said Friday that the U.S. added 130,000 jobs in August, slightly short of the 150,000 projected by economists surveyed by The Wall Street Journal. The unemployment rate, as expected, remained at 3.7%.

Investors watch the jobs data closely for signs of economic health, and August's jobs figures took on even more importance heading into the Federal Reserve's meeting later this month.

"We had enough in the jobs report to back you away from recession fears, but it wasn't too hot either," said Jim Paulsen, chief investment strategist at the Leuthold Group, noting that he liked to see an increase in hours worked and an increase in average hourly earnings. However, "it still very much allows the Fed to cut rates."

During a speech in Zurich Friday, Fed Chairman Jerome Powell gave little pushback against expectations that the Fed is gearing up to cut interest rates again. He also said the U.S. economy faces a favorable trade outlook and global slowdown risks, adding the Fed is "not forecasting or expecting a recession."

The jobs report didn't do much to alter traders' expectations for Fed rate cuts. Federal-funds futures point to the market pricing in a 92% chance of the Fed lowering its benchmark rate by 25 basis points at its meeting later this month, just a hair lower than Thursday's 95%, according to CME Group. Market expectations for a 50-basis point cut remain at zero -- unchanged over the past week.

The employment data comes on the heels of a rally in stock markets around the globe. Including Friday's gain, the S&P 500 is up six of the past seven trading sessions and is less than 2% away from its July record.

This week's gains come as trade tensions between the U.S. and China and political instability in Hong Kong and Great Britain appeared to ease.

Despite the recent optimism among traders and investors, there are reasons to remain wary. Bond markets are sending warnings about the risk of a coming recession with long-term bond yields falling below the levels of shorter-term yields, a concept known as an inversion of the yield curve.

Government bond yields slipped after the jobs data, with the yield on the benchmark 10-year note settling at 1.552%. Bond yields and prices move in opposite directions.

Meanwhile, the back-and-forth between the U.S. and China on trade is starting to inflict real economic damage. Analysts expect companies in the S&P 500 with higher international revenue exposure to report year-over-year declines in earnings and revenue in the third quarter, while those with lower global revenue exposure are expected to report growth in both areas, according to FactSet.

Data released earlier this week showed the U.S. manufacturing sector shrank for the first time in three years last month, and that trade was "the most significant issue."

Tuesday's Institute for Supply Management's manufacturing index report followed other data that points to contracting factory activity in the U.K., Germany, Japan and South Korea, sparking concern about a manufacturing slowdown. While Tuesday's reading sent stocks lower, they bounced back as worries eased slightly about growing unrest in Hong Kong and messy politics in the U.K. over Brexit.

The bounceback lifted major stock indexes around the world toward big gains for the week. The Stoxx Europe 600 ended the week up 2%, its third consecutive weekly rise. In Asia, the Shanghai Composite finished the week up 3.9%, while Hong Kong's Hang Seng gained 3.8% in the same period.

Helping buoy stocks was central bank intervention around the globe. China's central bank reduced reserve requirements for lenders Friday, marking a fresh effort to support the economy. Analysts at Citi had flagged expectations of further policy easing last month as credit data deteriorated, including cuts in the reserve ratio. The move came after Asian stock markets had already closed.

The Russian central bank also cut its benchmark rate Friday, joining a wider drive for looser monetary policy around the world since the Fed cut interest rates for the first time in a decade at its last meeting.

--Avantika Chilkoti contributed to this article

Write to Corrie Driebusch at corrie.driebusch@wsj.com

(END) Dow Jones Newswires

September 06, 2019 16:49 ET (20:49 GMT)