By Noel Randewich
(Reuters) - U.S. stocks ended slightly higher on Thursday as investors, on edge after recent turmoil in China's markets, looked toward a key U.S. jobs report that may figure in the Federal Reserve's decision about when to lift interest rates.
Major U.S. indices at one point rose strongly over 1 percent but relinquished those gains to dip into negative territory as worries about China's economy weighed on traders' minds, though the Dow Jones industrial average and S&P 500 managed to hold on to end modestly higher.
It was the second consecutive day of increases after over two weeks of China-driven market turmoil that has left the S&P 500 down 9 percent from its all-time high in May.
"After a waterfall decline like we had over a week ago, you can have violent moves both up and down," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. "That's a little of what we're seeing now as well as positioning in advance of the jobs number tomorrow."
European Central Bank chief Mario Draghi hinted at additional stimulus measures for the euro zone, helping drive Wall Street's early gains.
His remarks came a day ahead of the monthly U.S. nonfarm payrolls data, which is expected to show that the economy added 220,000 nonfarm jobs in August, up from 215,000 in July.
The combination of a healing U.S. labor market and worries about a stumbling Chinese economy are challenging the Fed as it heads into a policy meeting on Sept 16-17 at which it may raise interest rates for the first time since 2006.
Near-zero rates have allowed the U.S. stock market to stage a spectacular bull-run since the financial crisis. But the market was rocked by volatility in the past two weeks, triggered by fears of slowing growth in China.
Some investors believe the market volatility, which left the S&P 500 with its biggest monthly drop in three years in August, may lead the Fed to delay a rate hike until the end of the year.
The CBOE Volatility index (.VIX), known as Wall Street's "fear gauge", fell 2.11 percent to 25.54, slightly above the long-term average of 20. The index spiked as high as 53.29 early last week.
The Dow Jones industrial average (.DJI) rose 0.14 percent to 16,374.76 and the S&P 500 (.SPX) gained 0.12 percent to 1,951.13 points. The Nasdaq Composite (.IXIC) ended 0.35 percent lower at 4,733.50.
Eight of the 10 major S&P sectors were higher, with the telecommunications index's (.SPLRCL) 0.77 percent rise leading the advancers.
Apple (AAPL.O) was the biggest drag on S&P 500 with a 1.75 percent drop while Exxon Mobil's 0.76 percent gain helped push the index higher.
Joy Global's (JOY.N) shares were down 14.60 percent after the mining equipment maker reported a fall in quarterly profit and cut its full-year forecast.
Caterpillar (CAT.N) also fell 2.1 percent and was the biggest drag on the Dow.
Advancing issues outnumbered decliners on the NYSE by 1,964 to 1,066. On the Nasdaq, 1,434 issues rose and 1,363 fell.
The S&P 500 index showed no new 52-week highs and one new low, while the Nasdaq recorded 30 new highs and 42 new lows.
Volume was lighter than in recent days. About 7.1 billion shares traded on U.S. exchanges, compared to an average of 8.5 billion in the past five sessions, according to BATS Global Markets.
(Additional reporting by Tanya Agrawal and Caroline Valetkevitch; Editing by Chizu Nomiyama)