Bank stocks rose Friday as positive news from a troubled bond insurer outweighed further signs that the U.S. economy is heading into a recession.

The KBW Bank Index rose 1.62%, to finish the week up 11.42%.

Other indexes weren't so fortunate. The Standard & Poor's 500 index fell 0.56%, though ending the week up 2.1%. The Dow Jones industrial average lost 1.74% on Friday and 0.39% for the week.

Ambac Financial Group Inc. shares jumped 50.4% after the New York bond insurer said it would pay Citigroup Inc. $850 million to remove a guarantee of a $1.4 billion collateralized debt obligation. Ambac said it would record a $150 million gain on the contract since it had already written down the value of the CDO by $1 billion.

The Labor Department reported that unemployment hit a four-year high of 5.7% in July, up from 5.5% a month earlier. Among minor positives in the report, payrolls were slashed by a less-than-expected 51,000 jobs, and the agency adjusted its employment data for May and June to show a total of 26,000 fewer jobs lost than was originally reported.

Sung Won Sohn, an economist at California State University, Los Angeles, wrote in a research note that July was the seventh straight month of job losses and that the economy has lost 463,000 jobs this year. The aggregate results indicate "that the economy is in a recession," he wrote, and that "no respite is in sight as layoffs mount." He wrote that the Federal Reserve is caught in a difficult situation that gives it "no reason to change its policy."

But Gary B. Townsend, the chief executive at Hill-Townsend Capital LLC, said in an interview that Ambac's news held sway over the bank sector. "It appears the issues there are less severe than many short sellers had thought," he said. "And there are some signals at least that while economic growth has slowed there is still no recession."

Citi's shares rose 1% despite the New York company's disclosure in its quarterly filing with the Securities and Exchange Commission that it had received subpoenas or requests for information from regulators, including the SEC, tied to its handling of auction-rate securities. The company said the SEC had issued a formal order of investigation into whether the sale of such products had violated federal securities laws.

Citi also said in the filing that it had received requests for information from various government and self-regulatory agencies regarding certain Citi-managed hedge funds. The company said it is cooperating fully with such requests.

Wachovia Corp.'s shares rose 9.9% a day after the company said that chief risk officer Donald Truslow would retire once a successor is hired. Word of his departure came a week after the Charlotte company said that chief financial officer Thomas Wurtz would leave and three weeks after Robert Steel was hired to replace ousted president and chief executive G. Kennedy Thompson.

Silver State Bancorp shares fell 29.7% after the Henderson, Nev., company reported its second straight dismal quarter and said that chairman Bryan S. Norby and president and chief executive Corey L. Johnson were both stepping down. The company lost $62.7 million in the quarter after a $14.4 million loss in the first quarter.

Gainers included Pacific Capital Bancorp in Santa Barbara, Calif., up 8.8%; National City Corp. in Cleveland, 6.8%; and BB&T Corp. in Winston-Salem, N.C., 3.6%.

Decliners included Investors Bancorp Inc. in Short Hills, N.J., off 1.1%; Capital One Financial Corp. in McLean, Va., 0.8%; and PrivateBancorp Inc. in Chicago, 0.6%.

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