* Sept nonfarm payrolls up by 142,000 vs 203,000 expected
* Unemployment rate unchanged at 5.1 pct
* Expectations of rate hike this year recede
* Indexes up: Dow 0.5 pct, S&P 0.56 pct, Nasdaq 0.76 pct (Updates to afternoon)
By Noel Randewich
Oct 2 (Reuters) - U.S. stocks gained on Friday afternoon as early worries about the economy after a disappointing jobs report gave way to a rally in beaten-down energy and materials stocks.
The three major indexes clawed back losses of more than 1.5 percent as investors weighed poor payroll data that hinted at economic weakness but also strengthened the argument for delaying a long-awaited interest rate hike.
“The uncertainty has certainly increased,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.
However, he said there was no one catalyst for the intraday volatility. “There has been a bounce in biotechs, which have been oversold, and that’s helped things today.”
Nonfarm payrolls rose by 142,000, far less than the 203,000 economists had expected, and August and July figures were revised down. But the jobless rate held at 5.1 percent.
The report, the last before the Federal Reserve’s meeting at the end of October, appeared to contradict Fed Chair Janet Yellen’s comment last week that the economy was strong enough to withstand a rate hike this year.
Odds of a December rate hike fell to a little over 27 percent from 44 percent before the report.
With the third-quarter earnings season starting next week, investors are starting to factor in what might be the biggest decline in earnings for S&P 500 companies in six years.
At 2:33 p.m., the Dow Jones industrial average was up 0.5 percent at 16,353.69 points and the S&P 500 gained 0.56 percent to 1,934.52. The Nasdaq Composite added 0.76 percent to 4,662.38.
Eight of the 10 major sectors were higher, with the energy index’s 2.7 percent rise leading the advancers. Oil prices also recovered after early weakness.
Chevron rose 3.08 percent and ConocoPhillips jumped 4.94 percent.
The S&P materials index added 1.55 percent, led by a 1.30-percent jump in Alcoa.
Advancing issues outnumbered decliners on the NYSE by 1,909 to 1,123. On the Nasdaq, 1,634 issues rose and 1,128 fell.
The S&P 500 index showed two new 52-week highs and 56 lows, while the Nasdaq recorded nine new highs and 186 lows.
Additional reporting by Charles Mikolajczak, Tanya Agrawal, and Abhiram Nandakumar; Editing by Nick Zieminski