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By Angela Moon

NEW YORK, Sept 4 (Reuters) - U.S. stocks closed higher on Friday as investors focused on the bright side of a mixed payrolls report that showed smaller-than-expected job cuts in August, although the unemployment rate hit a 26-year high.

The market was relatively flat in morning trade before sharply rising around noon, with all major indexes gaining around 1 percent.

"Yes, the unemployment rate was a little worse than expected, but the wild card was the non-farm payrolls, which came out better than forecast," said Robert Francello, head of equity trading for Apex Capital in San Francisco.