Wall Street headed for its worst week in over two months on Friday after a dismal jobs report, with a worsening economic outlook threatening further falls from current six-week lows.

If stocks end the week lower, it would be the fifth straight week of losses.

However, with stocks oversold in the short-term, investors latched on to a report showing that growth accelerated in May in the huge services sector, a welcome sign after other recent data showed the economic recovery slowing.

The report from the Institute for Supply Management helped stocks to cut their losses in half after a 1 percent drop.

Still, the S&P 500 intermittently tested its April low at 1,294.70 through the morning, a level that if broken, analysts say, could take the index back toward its 200-day moving average at around 1,250.

Our concerns are that long-term momentum is still more overbought than not. I think you're going to have to get a lot of those longer term measures flushed out said Ari Wald, an analyst at Brown Brothers Harriman in New York. We're looking at 1,230 on the downside.

Wald said he was expecting the market to bottom in the third quarter but did not rule out a short-term bounce from current levels.

The government's payrolls report, which showed 54,000 jobs added in May, was the weakest reading since September, while the U.S. unemployment rate rose to 9.1 percent from 9 percent in April.

In an otherwise all pervasive sea of red, the S&P's energy sector <.GSPE> gained 0.8 percent as crude oil futures cut losses, while beaten down financial stocks <.GSPF> also provided a lift, adding 0.4 percent.

JP Morgan Chase & Co and Bank of America were advancing shares. JP Morgan was the biggest boost for the Dow, up 0.7 percent to $41.93, while Bank of America gained 0.5 percent to $11.35.

The Dow Jones industrial average <.DJI> dropped 41.81 points, or 0.34 percent, to 12,206.74. The Standard & Poor's 500 Index <.SPX> dropped 5.00 points, or 0.38 percent, to 1,307.94. The Nasdaq Composite Index <.IXIC> dropped 17.11 points, or 0.62 percent, to 2,756.20.

Recent data on manufacturing, housing and the consumer sector have pointed to a slowing economy, prompting debate among investors about the duration of the economic softness.

People have come to the conclusion that the economy is in a slow patch right now, and people are trying to figure out how temporary this slower growth is -- whether it's actually a change or a bump in the road for the recovery. Right now it's a bump in the road, said Giri Cherukuri, head trader at Oakbrook Investments in Lisle, Illinois.

After the S&P 500 closed on April 29 at 1,363.61, its highest level since June 2008, the benchmark index has dropped 4.2 percent. Stocks are trading at their lowest in six weeks.

For the year, though, stocks still are positive, with the Dow up 5.2 percent, while the S&P 500 and the Nasdaq are each up 3.8 percent.

Newell Rubbermaid Inc had the biggest percentage drop on the S&P 500, sliding 11.9 percent to $14.94 after the storage container maker cut its forecasts for the year and said second-quarter results will miss estimates.

(Reporting by Edward Krudy; Editing by Kenneth Barry)

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