Updated from 4:03 p.m. EST

Stocks closed mixed Friday, following a volatile morning of trading, as investors speculated on how February's weak jobs market might influence the Fed's policy on interest rates.

The Dow Jones Industrial Average added 7.55 points to 10,595.55; the S&P 500 rose 1.99 points to 1156.86, just shy of a new two-year high; and the Nasdaq Composite lost 7.48 points to 2047.63, but snapped a six-week skid. All three indices managed to recover from sharp opening losses following the release of the nonfarm payroll data.

Volume on the New York Stock Exchange approached 1.4 billion shares, and advancers outnumbered decliners by 2 to 1. Over 2 billion shares changed hands on the Nasdaq, where advancers and decliners were about even.

The Dow ended a two-week losing streak with a fractional gain, while the S&P 500 rose for the second week in a row, adding more than 1%.

In other markets, the 10-year Treasury note rallied, gaining 1 13/32, while the yield fell to 3.84%, its lowest level since mid-July. At one point in the session, the one-day move in the yield was the biggest in 2 1/2 years.

In currencies, the euro surged against the dollar, buying $1.2376, compared with $1.2192 at Thursday's close. The dollar gained against the yen, buying 112.07 yen compared with 111.09 at Thursday's close.

"This keeps the Fed under wraps; it is not going to raise rates now," said Paul Nolte, director of investments at Hinsdale Associates. "Lower rates are good for the market, but, jeez, shouldn't we have a lot more employment right now? That's not so good. It's one of those good news/bad news type of mentalities and no one's really figured out what to do about it."

Nolte is among the many strategists who think the market is in a corrective mode. "The economy is growing, but it's not satisfying a lot of people. Rightly or wrongly, people are focused on job creation," he said. "I think the markets are destined to trade sideways to down for the next couple of months. It's going to be kind of sloppy through much of the year until we get close to the election."

The biggest variable for monetary policy is the inflation picture, which is directly tied to the dollar, according to Dean Baker, co-director with the Center for Economic and Policy Research. He pointed out that central banks in Asia, especially the Bank of Japan, have been buying dollars at an "astounding rate" to support the currency over the last six months. "They're obviously not going to do that forever," said Baker. "Do they stop next month, a year from now? Do they try and phase it down? That's a huge wild card."

Baker said a large selloff in the dollar could create considerable financial turmoil and perhaps force the Fed to raise rates.

The government said the economy created just 21,000 jobs in February. The consensus estimate was for nonfarm payrolls to increase by 125,000. The government also revised lower nonfarm payroll increases in January and December. The manufacturing sector lost jobs again in February. Meanwhile, the jobless rate remained at 5.6%.

Average hourly earnings increased 0.2%, matching consensus estimates, while January's growth rate was revised up from 0.1% to 0.3%. The average workweek also met expectations, reported to be 33.8 hours, while January's number was revised up from 33.7 to 33.8.

In overseas markets, the FTSE in London lost 0.3% to 4546, while Germany's Xetra DAX was up 0.08% to 4137. In Asia, Japan's Nikkei closed 1.2% higher at 11,537, and the Hang Seng in Hong Kong was flat at 13,455.

Hopes that the Fed will delay a rate cut helped homebuilder and financial stocks.

Shares in Martha Stewart Living ( MS0) were halted for a while after a jury found the company's founder guilty on all four counts in her obstruction of justice trial. Shares closed down $3.26, or 23.2%, to $10.77 after reaching a high of $17 before the decision was handed down.

Among other stocks on the move, Sun Microsystems ( SUNW) was down after Standard & Poor's cut its $1.3 billion of outstanding debt to junk status. Shares fell 36 cents, or 7%, to $4.80.

McDonald's ( MCD) reported same-store sales growth in February of 13.9%, its 10th consecutive month of growth. Shares closed up 91 cents, or 3.2%, to $29.75.

Intel ( INTC) late yesterday revised its forecast for first-quarter revenue to a range of $8 billion to $8.2 billion, from its original guidance of $7.9 billion to $8.5 billion. Its shares closed down 70 cents, or 2.4%, to $28.95.

On Monday, no economic news is scheduled for release. Kindred Healthcare ( KIND) is expected to report fourth-quarter earnings per share of 91 cents compared to 9 cents a share in the same period last year, according to a poll from Thomson One Analytics.