WASHINGTON -- Wall Street ended mixed Friday, unable to sustain an early rally inspired by a US employment report that showed further signs of hope in a weak economy.

The Dow Jones Industrial Average closed with a gain of 12.89 points (0.15 percent) at 8,763.13, after early gains of nearly 90 points faded.

But the blue-chip index managed to notch another five-month high and cap a solid week that saw a gain of three percent.

The tech-dominated Nasdaq fell a fractional 0.60 points (0.03 percent) to 1,849.42 while the Standard & Poor's 500 index lost 2.37 points (0.25 percent) to 940.09.

The market appeared to take a positive view of a Labor Department report that showed the US unemployment rate surged to a 26-year high of 9.4 percent in May, while the number of job losses slowed to a better-than-expected 345,000.

The report, seen as one of the best indicators of economic momentum, offered conflicting signals about a weak labor market, but suggested that the pace of massive job cuts appeared to be easing.

Some said the report was consistent with the notion of "green shoots" of recovery for an economy in recession since late 2007.

"While this was a loss of jobs, it was the narrowest loss in over nine months which is a huge sign in my book," said Kevin Giddis, analyst at Morgan Keegan

"This has been a long time coming, but I am starting to believe that we have turned a real corner here and good things are about to happen."

But Gregory Drahuschak at Janney Montgomery Scott said the market may need to see signs that the economy is growing again, not merely declining at a slower pace.

"The market is likely to enter a period where reports of slower rates of decline in economic data no longer will be enough to move the market higher and instead the market will need to see actual improvement," he said.

Elizabeth Harrow at Schaeffer's Investment Research said bond market tensions also weighed on Wall Street, raising the prospect of higher interest rates that could hurt recovery efforts.

"Inflationary concerns were also reawakened today," she said. "With the economy still struggling and the greenback surging, investors fretted that the Federal Reserve might be forced to hike interest rates before a full-fledged recovery can take place."

Bonds took a pounding. The yield on the 10-year Treasury bond jumped to 3.862 percent from 3.716 percent on Thursday and that on the 30-year bond increased to 4.656 percent from 4.595 percent. Bond yields and prices move in opposite directions.

Among stocks in focus, Apple climbed 0.65 percent to $44.67 after a report it plans to introduce a lower-cost version of its iPhone soon and a separate report that Steve Jobs was ready to return to the helm after a medical leave.

Citigroup slumped 3.08 percent to $3.46 after the Wall Street Journal reported that the top US banking regulator is pressing for a change at the top management of the banking giant.

Wal-Mart rose 0.39 percent to $51.07 after the world's biggest retailer said it was launching a $15-billion share buyback.