NEW YORK (TheStreet) -- U.S. markets ended the week in the red, despite a jobs-data-inspired rally on Friday. Earlier this week, stocks plummeted on fears the Federal Reserve could increase interest rates as it tapers its stimulus program. 

The S&P 500 (^GSPC) gained 1.12% to settle at 1,967.90 on Friday, paring full-week losses to 0.77%. The Russell 2000 (^RUT) small-cap index climbed 0.76% to 1,104.74, as better-than-expected jobs data encouraged investment in the riskier equities. For the week, the index was down 1.27%. 

Market sentiment was positive on Friday as jobs growth pushed the U.S. unemployment rate to its lowest level in six years, bolstering the outlook for the country's recovery from the Great Recession. Friday's lift could be attributed to some bargain-seeking coupled with an increased appetite for risk, added Brian Peery, portfolio manager of the Hennessy Cornerstone Mid Cap 30 Fund

The U.S dollar index spiked to its best levels since June 2010 at an intraday high of 86.74, alongside the U.S. 10-year yield's rise to 2.441%. The gains were a reflection of confidence in the U.S. economy. Meanwhile theSPDR Gold Trust(GLD) - Get Report shed 1.82% and the United States Oil Fund(USO) - Get Report dropped 1.69%, driven down by the U.S. dollar pop. Light sweet crude oil prices were still hovering around $89-a-barrel also on supply-glut concerns. December gold futures lost $22.20, or 1.8%, to $1,192.90 an ounce. It was the worst closing price since Aug. 3, 2010 that erased gains for the year.

The dollar has risen to its strongest levels over the last few weeks since 2008, which is pushing out the target of when the Fed needs to raise rates; a stronger dollar has a tendency to hold inflation very low. Against this backdrop, "good news was good news" for the markets on Friday, said Peery.

"If you use the dollar as kind of a proxy of how well the central bank policies have been doing, you should see the message is the Fed is doing a great job," said Peery. "The economy is picking up. Capital spending is starting to increase. We've got lower oil prices. All in all we're doing really well and it's getting better, and I'm comfortable with that 2.5% to 3% growth rate."

The Bureau of Labor Statistics reported that the U.S. created a greater-than-expected 248,000 jobs in September, rising from an upwardly revised August jobs number of 180,000. The headline figure for July was upwardly revised to 243,000, bringing the combined employment gains in July and August to 69,000 more than previously reported.

The jobless rate in September dropped to its lowest since July 2008 at 5.9%, down from 6.1% in August. Economists surveyed by Reuters, on average, were expecting a September jobs gain of 215,000 and the jobless rate to hold at 6.1%.

In U.S. economic news, the ISM Non-manufacturing Index came in at 58.6 in September, better than the consensus 58.5 estimate, though it slowed from August.

In corporate news on FridayJPMorgan(JPM) - Get Report said the personal data of about 76 million retail customers and 7 million business customers was compromised in a security breach that the bank first disclosed this summer. Shares gained 2.53% after a morning of sideways action.

Chiquita Brands (CQB) rose 1.28% after the fruit grower and its Irish competitor Fyffes announced that they've received clearance from the European Commission for a $526 million merger deal that will create the largest banana producer in the world.

Covidien (COV) shares spiked 5.87% after would-be acquirer Medtronic(MDT) - Get Report announced its financing plans to cover its $43 billion purchase price. 

Cliff Natural Resources(CLF) - Get Report tumbled 17.05% after being downgraded to "reduce" from "buy" at RBC Capital Markets. Analysts forecast iron ore prices to remain weak through 2017.

Salix Pharmaceuticals (SLXP) and Italy's Cosmo Pharmaceuticals said they have terminated their merger agreement, a deal that was structured as a so-called inversion, because of a "changed political environment." Salix jumped 1.26%. 

Separately, Bloomberg reported that Botox maker Allergan(AGN) - Get Report is running out of options to fend off a takeover by Valeant Pharmaceuticals (VRX) . The option of defending itself by acquiring smaller drugmaker Salix or merge with similarly sized peer Actavis seemed to be slipping away as Salix reportedly is in talks to sell itself to Actavis. Allergan rose 3.66% and Valeant added 2.07%.

Charles Schwab(SCHW) - Get Report  dropped the Pimco Total Return Fund from its 10 target date funds and collective trusts, a company spokeswoman told Reuters. The firm completed its review of the fund this week following the announcement last Friday that Bill Gross, Pimco's co-founder and manager of the fund, was leaving to join Janus Capital (JNS) .

-- By Andrea Tse in New York

Follow @AndreaTTse