Wall Street withstands jobs disappointment; focus on Fed

Traders work on the floor of the New York Stock Exchange, September 6, 2012.

NEW YORK (Reuters) - Stocks held steady at four-year highs on Friday, closing out their best week since June as a sharply disappointing jobs report only fueled expectations that the Federal Reserve would act to stimulate the economy next week.

The S&P closed higher but strength in both the Dow and Nasdaq was limited by blue-chips Intel and Kraft, both of which warned on their profit outlooks.

The August nonfarm payrolls report showed job growth of only 96,000, well under the 125,000 expected. That added to hopes the Federal Reserve will announce additional stimulus after its policy meeting ends Thursday, but investors could be in a holding pattern until then.

"There's no way to sugarcoat how disappointing the jobs number was, and as it reinforces the view the economy is lagging, that puts more pressure on the Fed to act," said Joseph Tanious, global market strategist at J.P. Morgan Funds in New York.

"I absolutely think stocks still have room to grow from here, but there will certainly be disappointment if we don't get direction from the Fed next week."

The expectations for central bank intervention, both from the Fed and the European Central Bank, has fueled a rally that took the S&P 500 to its highest level since January 2008 on Thursday and pushed the Nasdaq to a 12-year high.

The gains were fueled by the ECB's decision to launch a potentially unlimited bond-buying program to lower struggling euro zone countries' borrowing costs.

"This was a very bold and unorthodox move by the ECB, and it appears to be more important for stocks than the payroll report, another example of how Europe is impacting the U.S. with a vengeance," said Marco Priani, vice president at Advisory Research in Chicago, which has about $10 billion in assets.

Energy and financial shares were among the day's strongest, lifted as investors bought shares in areas tied to the pace of economic growth. ConocoPhillips (COP.N) rose 1.5 percent to $56.64 while Noble Energy (NBL.N) rose 2.4 percent to $91.50. Bank of America (BAC.N) surged 5.4 percent to $8.80.

The Dow Jones industrial average .DJI ended up 14.64 points, or 0.11 percent, at 13,306.64. The Standard & Poor's 500 Index .SPX was up 5.80 points, or 0.40 percent, at 1,437.92. The Nasdaq Composite Index .IXIC was up 0.61 points, or 0.02 percent, at 3,136.42.

For the week, the S&P is up 2.2 percent while the Dow is up 1.6 percent and the Nasdaq is up 2.3 percent. It was the best week for the S&P and Nasdaq since June, and the best for the Dow since July.

Intel Corp (INTC.O) cut its third-quarter revenue estimate and withdrew its full-year forecast, saying demand for its chips declined as customers reduced inventory and businesses bought fewer personal computers. Shares of the world's largest chipmaker fell 3.6 percent to $24.19 while the PHLX semiconductor index .SOX lost 0.8 percent.

Kraft Foods Inc KFT.O gave earnings forecasts for the two companies it will split into next month that disappointed analysts. The stock, which like Intel is a Dow component, fell 5.5 percent to $39.99.

The jobs report showed the unemployment rate dropped to 8.1 percent from 8.3 percent in July, but it was largely due to Americans giving up the search for work.

Material shares .GSPM were also among the strongest of the day after China approved $157 billion in infrastructure spending in a move to energize an economy that has recently shown signs of slowing. AK Steel Holding (AKS.N) surged 7.6 percent to $5.78 while James River Coal (JRCC.O) added 5.3 percent to $2.76 and Alpha Natural Resources (ANR.N) soared 17 percent to $6.90.

Shares of Pandora Media Inc (P.N) fell 17 percent to $10.47 following media reports that Apple Inc (AAPL.O) was in talks to license music for a radio service like the one Pandora operates.

About 65 percent of companies traded on the New York Stock Exchange closed higher while 56 percent of Nasdaq shares ended higher.

Volume was light, with about 6.44 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 7.84 billion.

(Editing by Dan Grebler)