* Payrolls data weaker than expected
* Utilities shares lead S&P gains
* Gap shares fall on weak August same-store sales
* Dow up 0.29 pct, S&P up 0.34 pct, Nasdaq up 0.25 pct (Updates to afternoon, changes quote)
By Akane Otani
NEW YORK, Sept 5 (Reuters) - U.S. stocks rose on Friday afternoon, rebounding from losses earlier in the session, as investors took a weak payrolls report to mean there was little risk the Federal Reserve would speed up its plans to raise interest rates.
Stocks had fluctuated in morning trading after the government reported far fewer U.S. jobs were created in August than had been expected.
By early afternoon, however, major indexes swung largely to the upside, led by utility stocks, as some investors saw the payrolls weakness as reason to believe the Fed would hold off on hiking interest rates.
“One of the factors that has been favorable for financial and risk assets is that we continue to operate in an extremely low interest rate environment,” said Ronald Sanchez, executive vice president and chief investment officer of Fiduciary Trust in New York.
The market may also have discounted the headline weakness in the payroll numbers because they largely bucked the recent trend of more upbeat data, Sanchez said.
Utilities shares led the rise in the S&P, gaining 1 percent as the best performing sector of the day, as investors turned to the group for their income appeal with bond yields falling in response to the payrolls data. Utility shares often benefit as bond yields fall because the companies pay relatively rich dividends, which appeal to income-oriented investors.
Power generator NRG Energy Inc rose 2 percent to $30.91, and XCEL Energy Inc advanced 1.8 percent to $32.44.
The Dow Jones industrial average rose 49.94 points, or 0.29 percent, to 17,119.52. The S&P 500 was up 6.88 points, or 0.34 percent, to 2,004.53. The Nasdaq Composite added 11.26 points, or 0.25 percent, to 4,573.54.
Apple shares edged up 0.5 percent to $98.57 after the company said it planned to add new security features to its iCloud service.
Retailers lost ground, weighed by a decline in Gap Inc . Shares of the apparel company, which were the worst performers in the S&P, dropped 4.7 percent to $44.39 after worse-than-expected same-store-sales for August.
Michael Kors shares lost 3.9 percent to $76.84. The company announced a secondary offering of 11.6 million shares on behalf of one of its founding shareholders, which will result in the resignation of two board members.
U.S.-listed shares of Prana Biotechnology surged 21 percent to $2.59. The company said it received an orphan drug designation for its Huntington Disease treatment.
Quiksilver plunged 27.6 percent to $2.05 a day after the retailer reported a surprise loss for the third quarter. (Additional reporting by Herbert Lash; Editing by Bernadette Baum and Nick Zieminski)