The US Labor Department data showed nonfarm payrolls rose by 224,000 jobs in June, the most in five months, and solidly beating economists' expectation of 160,000 additions.

Traders sharply scaled back their expectations of a rate cut of half a percentage point by the central bank at its next policy meeting on July 30-31, although confidence remained high the Fed would cut rates by 25 basis points.

Stocks slumped in May as trade talks between the United States and China were at a standstill and economic data began to point to a slowing.

However, equities have rallied since June as the Fed and other global central banks signaled they were becoming more dovish.

"The last, best hope of the bulls in a market like this is you get some sort of cutting from the Fed," said Tobias Carlisle, founder and portfolio manager at Acquirers Funds in Los Angeles.

"So they seem to be watching the Fed really closely, and the Fed is watching the market too."

The Dow Jones Industrial Average fell 43.88 points, or 0.16pc, to 26,922.12, the S&P 500 lost 5.41 points, or 0.18pc, to 2,990.41 and the Nasdaq Composite dropped 8.44 points, or 0.1pc, to 8,161.79.

FOR THE WEEK.

The jobs report also pointed to slowing wage growth and mounting evidence that the economy was losing momentum, which could still give the Fed enough of a cushion to cut rates at the end of the month.

The Fed, in its semiannual report to Congress, repeated its pledge to "act as appropriate" to sustain the economic expansion, and said while US economic growth continued "at a solid pace" in the first half of the year, it likely weakened in recent months as higher tariffs weighed.

Shares of banks, which have been under pressure from falling benchmark debt yields in recent weeks, rose 0.73pc and helped drive a 0.38pc gain in financials, one of the few bright spots among S&P sectors.

The defensive names such as real estate, utilities and consumer staples - each lost ground as a rise in US Treasury yields served to make the dividend-paying companies less attractive.

Trading volumes were light at the end of a holiday-shortened week as markets were shut on Thursday for the Independence Day holiday.

About 5.08 billion shares changed hands in US exchanges, compared with the 6.8 billion-share daily average over the last 20 sessions, the lowest volume day of the year for a full trading session.

Declining issues outnumbered advancing ones on the NYSE by a 1.18-to-1 ratio; on Nasdaq, a 1.15-to-1 ratio favored advancers.

The S&P 500 posted 37 new 52-week highs and no new lows; the Nasdaq Composite recorded 67 new highs and 42 new lows.