Stocks inched higher on Friday following a mixed payrolls report showing U.S. employers cut fewer-than-expected jobs in August even as 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. Analysts in a Reuters poll had forecast 225,000 job cuts. Wall Street is focused on unemployment as the biggest weight on the nascent recovery.

Even though the headline number was a little better than expected, it's not good news, said Dan Cook, senior market analyst at IG Markets in Chicago. I think that unemployment rate is going to take a toll.

Analysts said reduced trading volumes caused by fewer investors ahead of the U.S. Labor Day holiday could add to volatility.

The Dow Jones industrial average <.DJI> rose 6.19 points, or 0.07 percent, at 9,350.80. The Standard & Poor's 500 Index <.SPX> added 0.94 points, or 0.09 percent, at 1,004.18. The Nasdaq Composite Index <.IXIC> gained 5.16 points, or 0.26 percent, at 1,988.36.

Financial stocks were among gainers as Citigroup Inc rose 2.7 percent to $4.90 while the Financial Select Sector SPDR exchange-traded fund gained 0.6 percent.

Oil futures fell below $68 a barrel and gold slipped to below $990 an ounce, consolidating the biggest two-day gain since March. Energy stocks helped boost the wider market, with the S&P energy index <.GSPE> adding 0.2 percent.

(Additional reporting by Charles Mikolajczak; Editing by Padraic Cassidy)

Unemployment