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Signs of improvement in the economy and strong corporate earnings have propelled stock prices, but tapering volume, meager gains and declining numbers of advancing stocks pointed to waning buying interest at the end of the week.

January's employment data had a limited impact as job creation was weak but the unemployment rate fell sharply.

Sectors that have posted strong gains recently, such as energy, materials and industrials, showed signs of profit-taking as investors shifted to consumer discretionary and technology shares.

"The market has been getting more selective and the rotation is important," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. "I'm not sure people have it completely figured out yet."

Networking shares were among the leaders after JDS Uniphase

(JDSU.O) posted strong earnings. Its stock rose almost 30 percent and bolstered hopes for strong results from Cisco Systems (CSCO.O) next week.

The Dow Jones industrial average .DJI rose 29.89 points, or 0.25 percent, at 12,092.15. The Standard & Poor's 500 Index .SPX added 3.77 points, or 0.29 percent, at 1,310.87. The Nasdaq Composite Index .IXIC climbed 15.42 points, or 0.56 percent, at 2,769.30.

For the week the Dow rose 2.3 percent the S&P 500 rose 2.7 percent and the Nasdaq gained 3.1 percent.

The S&P's energy sector .GSPE, which has gained the most this year, was among the biggest losers on the day, falling 0.3 percent. Dow component Chevron Corp (CVX.N) dropped 0.2 percent to $97.11.

Consumer discretionary shares .GSPD rose 0.7 percent after recent signs of life in the consumer. Shares in online retailer Amazon.com Inc (AMZN.O) climbed 1.3 percent to $175.93. Consumer shares have lagged the rally since the start of the year.

Strength in technology helped push the Nasdaq to new 3-year highs after the index posted its best week since mid-September, but the move was not broad-based as declining stocks came in just ahead of advancers.

Shares of JDS Uniphase and other optical component makers jumped a day after the company posted solid quarterly results, helped by ever-increasing demand for higher bandwidth in smart phones, tablets and other applications.

JDS Uniphase shares rose 26.9 percent to $22.76.

"The strength in the technology sector today and strong earnings from JDS Uniphase potentially have people bulled up on the prospects of a positive earnings surprise from Cisco next Wednesday," said Steve Claussen, chief investment strategist at online brokerage OptionsHouse LLC.

Despite the conflicting signals in the Labor Department's report on Friday, economists agreed a job market recovery was proceeding apace if not gaining speed. Many investors also saw the data as a sign of strength. Government bonds sold off, while the dollar rallied against the yen and the euro.

The payrolls gain reported by U.S. employers was a quarter of the 145,000 gain economists had expected. But a separate household survey, which is used to determine the jobless rate, showed nearly 600,000 more people reported they were employed.

That surge pushed the unemployment rate to 9 percent from 9.4 percent in December. It has dropped 0.8 percentage point since November, the biggest two-month decline since 1958.

"The payroll details and the drop in unemployment signal that there is an underlying improvement in the labor market buried under the snow and ice," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Still, the decline in the jobless rate is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

Fed Chairman Ben Bernanke on Thursday sounded a more upbeat note on the economy, but said "it will be several years before the unemployment rate has returned to a more normal level."

Economists estimated that blizzards, which pounded the Northeast in January and buried cities in knee-deep snow, reduced payrolls by between 50,000 and 100,000.

Signs of underlying strength in the labor market were also yielded by revisions to November and December payrolls, which showed 40,000 more jobs created than previously estimated.

The U.S. Treasury debt sell-off pushed the spread between two-year yields and 10-year yields to an 11-month high. Stocks on Wall Street were little changed in mid-afternoon.

JOBS MIGHT BE UNDERSTATED

Though the Labor Department's payroll count continues to show moderate growth, independent surveys have suggested a pick-up in the pace of job creation, raising concerns that the government might be missing growth coming from new businesses.

Labor Department chief economist Betsey Stevenson told reporters the count was likely falling short, just as faulty estimates of how many companies were created or destroyed led to an understatement of job losses during the recession.

"It's a challenge for the establishment survey to be able to accurately record the number of businesses that are starting up and the number of businesses that are shutting their doors," Stevenson said.

"Now that we are in a recovery it's most likely, but we won't know for sure until next year, that we are missing a lot of businesses that are opening their doors and that we're over estimating the number of business that might be shutting their doors."

In a sweeping 365-page complaint, Irving Picard, the court-appointed trustee recovering money for Madoff's victims, said the Mets' owners, including chairman Fred Wilpon, "consciously disregarded" years of red flags about Madoff, while enriching themselves with profits they did not deserve.

Picard said partners at Wilpon's company Sterling Equities had 483 accounts with Madoff's firm. He also said the Mets team had 16 Madoff accounts, from which it withdrew more than $90 million of bogus profits to fund day-to-day operations.

"The Sterling partners were simply in too deep -- having substantially supported their businesses with Madoff money -- to do anything but ignore the gathering clouds," according to the complaint, which was made public on Friday.

"Despite being on notice and having every resource at their disposal to investigate the litany of legitimate questions surrounding Madoff," it added, "the Sterling partners chose to do nothing."

Picard's lawsuit was made public one day after the trustee unveiled embarrassing accusations in his $6.4 billion lawsuit accusing JPMorgan Chase & Co, once Madoff's main banker, of being "thoroughly complicit" in Madoff's fraud so it could do more business with him and protect its investments.

The Mets litigation has cast its own cloud over the immediate future of the team, which has had two straight losing seasons despite having one of the highest payrolls in Major League Baseball. Attendance at its two-year-old ballpark Citi Field fell 19 percent last year.

Wilpon, a co-founder at Sterling, repeated that he may sell part of the Mets as a result of Picard's litigation. The Mets also own a majority of SportsNet New York, better known as SNY, which broadcasts their games, with Time Warner Cable Inc and Comcast Corp also owning stakes.

"OUTRAGEOUS STRONG-ARM EFFORT," WILPON SAYS

In a joint statement, Wilpon and his brother-in-law, Sterling co-founder Saul Katz, called Picard's lawsuit "an outrageous strong-arm effort" to coerce a settlement and ruin their reputations and businesses.

"Not one of the Sterling partners ever knew or suspected that Madoff ran a Ponzi scheme," they said. "We thought that Madoff was a friend for 25 years. That is why his betrayal was so painful. We should not be made victims twice over -- the first time by Madoff, and again by the trustee's actions."

Lawyers for Wilpon and Katz also said Picard ignored "numerous accounts that, in the trustee's parlance, were 'net losers,' which, according to our clients' analysis, total approximately $160 million."

A Major League Baseball spokesman declined to comment.

Madoff's estimated $65 billion Ponzi scheme was uncovered on December 11, 2008. But Picard said the Mets defendants should have seen red flags much earlier.

His lawsuit pointed, for example, to a Sterling consultant who advised Katz around 2003 that Madoff's returns did not make sense, and that he "couldn't make Bernie's math work."

Signs of improvement in the economy and strong corporate earnings have propelled stock prices but tapering volume, meager gains and declining numbers of advancing stocks pointed to waning buying interest at the end of the week.

Sectors that have posted strong gains in the recent rally, such as energy, materials and industrials, showed signs of profit-taking while lagging sectors as well as technology shares posted gains.

"The market has been getting more selective and the rotation is important," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. "I'm not sure people have it completely figured out yet."

The Dow Jones industrial average .DJI added 7.98 points, or 0.07 percent, to 12,070.24. The Standard & Poor's 500 .SPX gained 1.12 points, or 0.09 percent, to 1,308.22. The Nasdaq Composite .IXIC rose 12.81 points, or 0.47 percent, to 2,766.69.

The S&P's energy sector .GSPE, which has gained the most this year, was the biggest loser on the day, falling 0.6 percent. Dow component Chevron Corp (CVX.N) dropped 0.6 percent to $96.70, while Halliburton Co (HAL.N) fell 2.2 percent to $45.76.

Consumer discretionary shares .GSPD rose 0.5 percent after recent signs of life in the consumer. Shares in online retailer Amazon.com Inc (AMZN.O) climbed 1.8 percent to

$176.79.

Strength in technology helped pushed the Nasdaq to new 3-year highs, but the move was not broad-based as declining stocks outnumbered advancing ones.

Kaufman said growth prospects and the defensive nature of some areas in technology were attractive. "When you're in the right areas in tech, it's definitely the place to be," he said.

Both the Dow and the S&P 500 remain near their 2 1/2-year highs reached last Tuesday.

"From a short-term perspective, the Dow has resistance at the 12,050 level and support at the key 12,000 region," said Joseph Hargett, analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

Health insurer Aetna Inc (AET.N) forecast 2011 profit well above of Wall Street's target on Friday and increased its dividend, sending its shares 10.2 percent higher to $36.67.

Tyson Foods Inc (TSN.N) advanced 6 percent to $18.61 after the company said quarterly earnings surged 86 percent as it sold beef and pork at much higher prices.

Hundreds of thousands of Egyptians marched peacefully in Cairo on Friday to demand an immediate end to President Hosni Mubarak's 30-year rule.

U.S. employment rose by a meager 36,000 jobs in January, far less than expected, but the unemployment rate fell to 9.0 percent, its lowest level since April 2009.

(Editing by Kenneth Barry)

Despite the conflicting signals in the Labor Department's report on Friday, economists agreed a job market recovery was proceeding apace if not gaining speed. Many investors also saw the data as a sign of strength. Government bonds sold off, while the dollar rallied against the yen and the euro.

The payrolls gain reported by U.S. employers was a quarter of the 145,000 gain economists had expected. But a separate household survey, which is used to determine the jobless rate, showed nearly 600,000 more people reported they were employed.

That surge pushed the unemployment rate to 9 percent from 9.4 percent in December. It has dropped 0.8 percentage point since November, the biggest two-month decline since 1958.

"The payroll details and the drop in unemployment signal that there is an underlying improvement in the labor market buried under the snow and ice," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Still, the decline in the jobless rate is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

Fed Chairman Ben Bernanke on Thursday sounded a more upbeat note on the economy, but said "it will be several years before the unemployment rate has returned to a more normal level."

Economists estimated that blizzards, which pounded the Northeast in January and buried cities in knee-deep snow, reduced payrolls by between 50,000 and 100,000.

Signs of underlying strength in the labor market were also yielded by revisions to November and December payrolls, which showed 40,000 more jobs created than previously estimated.

The U.S. Treasury debt sell-off pushed the spread between two-year yields and 10-year yields to an 11-month high. Stocks on Wall Street were little changed in mid-afternoon.

JOBS MIGHT BE UNDERSTATED

Though the Labor Department's payroll count continues to show moderate growth, independent surveys have suggested a pick-up in the pace of job creation, raising concerns that the government might be missing growth coming from new businesses.

Labor Department chief economist Betsey Stevenson told reporters the count was likely falling short, just as faulty estimates of how many companies were created or destroyed led to an understatement of job losses during the recession.

"It's a challenge for the establishment survey to be able to accurately record the number of businesses that are starting up and the number of businesses that are shutting their doors," Stevenson said.

"Now that we are in a recovery it's most likely, but we won't know for sure until next year, that we are missing a lot of businesses that are opening their doors and that we're over estimating the number of business that might be shutting their doors."