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Signs of improvement in the economy and strong corporate earnings have propelled stock prices, but tapering volume, meager gains and declining numbers of advancing stocks pointed to waning buying interest at the end of the week.

January's employment data had a limited impact as job creation was weak but the unemployment rate fell sharply.

Sectors that have posted strong gains recently, such as energy, materials and industrials, showed signs of profit-taking as investors shifted to consumer discretionary and technology shares.

"The market has been getting more selective and the rotation is important," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. "I'm not sure people have it completely figured out yet."

Networking shares were among the leaders after JDS Uniphase

(JDSU.O) posted strong earnings. Its stock rose almost 30 percent and bolstered hopes for strong results from Cisco Systems (CSCO.O) next week.

The Dow Jones industrial average .DJI rose 29.89 points, or 0.25 percent, at 12,092.15. The Standard & Poor's 500 Index .SPX added 3.77 points, or 0.29 percent, at 1,310.87. The Nasdaq Composite Index .IXIC climbed 15.42 points, or 0.56 percent, at 2,769.30.

For the week the Dow rose 2.3 percent the S&P 500 rose 2.7 percent and the Nasdaq gained 3.1 percent.

The S&P's energy sector .GSPE, which has gained the most this year, was among the biggest losers on the day, falling 0.3 percent. Dow component Chevron Corp (CVX.N) dropped 0.2 percent to $97.11.

Consumer discretionary shares .GSPD rose 0.7 percent after recent signs of life in the consumer. Shares in online retailer Amazon.com Inc (AMZN.O) climbed 1.3 percent to $175.93. Consumer shares have lagged the rally since the start of the year.

Strength in technology helped push the Nasdaq to new 3-year highs after the index posted its best week since mid-September, but the move was not broad-based as declining stocks came in just ahead of advancers.

Shares of JDS Uniphase and other optical component makers jumped a day after the company posted solid quarterly results, helped by ever-increasing demand for higher bandwidth in smart phones, tablets and other applications.

JDS Uniphase shares rose 26.9 percent to $22.76.

"The strength in the technology sector today and strong earnings from JDS Uniphase potentially have people bulled up on the prospects of a positive earnings surprise from Cisco next Wednesday," said Steve Claussen, chief investment strategist at online brokerage OptionsHouse LLC.

Despite the conflicting signals in the Labor Department's report on Friday, economists agreed a job market recovery was proceeding apace if not gaining speed. Many investors also saw the data as a sign of strength. Government bonds sold off, while the dollar rallied against the yen and the euro.

The payrolls gain reported by U.S. employers was a quarter of the 145,000 gain economists had expected. But a separate household survey, which is used to determine the jobless rate, showed nearly 600,000 more people reported they were employed.

That surge pushed the unemployment rate to 9 percent from 9.4 percent in December. It has dropped 0.8 percentage point since November, the biggest two-month decline since 1958.

"The payroll details and the drop in unemployment signal that there is an underlying improvement in the labor market buried under the snow and ice," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Still, the decline in the jobless rate is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

Fed Chairman Ben Bernanke on Thursday sounded a more upbeat note on the economy, but said "it will be several years before the unemployment rate has returned to a more normal level."

Economists estimated that blizzards, which pounded the Northeast in January and buried cities in knee-deep snow, reduced payrolls by between 50,000 and 100,000.

Signs of underlying strength in the labor market were also yielded by revisions to November and December payrolls, which showed 40,000 more jobs created than previously estimated.

The U.S. Treasury debt sell-off pushed the spread between two-year yields and 10-year yields to an 11-month high. Stocks on Wall Street were little changed in mid-afternoon.

JOBS MIGHT BE UNDERSTATED

Though the Labor Department's payroll count continues to show moderate growth, independent surveys have suggested a pick-up in the pace of job creation, raising concerns that the government might be missing growth coming from new businesses.

Labor Department chief economist Betsey Stevenson told reporters the count was likely falling short, just as faulty estimates of how many companies were created or destroyed led to an understatement of job losses during the recession.

"It's a challenge for the establishment survey to be able to accurately record the number of businesses that are starting up and the number of businesses that are shutting their doors," Stevenson said.

"Now that we are in a recovery it's most likely, but we won't know for sure until next year, that we are missing a lot of businesses that are opening their doors and that we're over estimating the number of business that might be shutting their doors."

In a sweeping 365-page complaint, Irving Picard, the court-appointed trustee recovering money for Madoff's victims, said the Mets' owners, including chairman Fred Wilpon, "consciously disregarded" years of red flags about Madoff, while enriching themselves with profits they did not deserve.

Picard said partners at Wilpon's company Sterling Equities had 483 accounts with Madoff's firm. He also said the Mets team had 16 Madoff accounts, from which it withdrew more than $90 million of bogus profits to fund day-to-day operations.

"The Sterling partners were simply in too deep -- having substantially supported their businesses with Madoff money -- to do anything but ignore the gathering clouds," according to the complaint, which was made public on Friday.

"Despite being on notice and having every resource at their disposal to investigate the litany of legitimate questions surrounding Madoff," it added, "the Sterling partners chose to do nothing."

Picard's lawsuit was made public one day after the trustee unveiled embarrassing accusations in his $6.4 billion lawsuit accusing JPMorgan Chase & Co, once Madoff's main banker, of being "thoroughly complicit" in Madoff's fraud so it could do more business with him and protect its investments.

The Mets litigation has cast its own cloud over the immediate future of the team, which has had two straight losing seasons despite having one of the highest payrolls in Major League Baseball. Attendance at its two-year-old ballpark Citi Field fell 19 percent last year.

Wilpon, a co-founder at Sterling, repeated that he may sell part of the Mets as a result of Picard's litigation. The Mets also own a majority of SportsNet New York, better known as SNY, which broadcasts their games, with Time Warner Cable Inc and Comcast Corp also owning stakes.

"OUTRAGEOUS STRONG-ARM EFFORT," WILPON SAYS

In a joint statement, Wilpon and his brother-in-law, Sterling co-founder Saul Katz, called Picard's lawsuit "an outrageous strong-arm effort" to coerce a settlement and ruin their reputations and businesses.

"Not one of the Sterling partners ever knew or suspected that Madoff ran a Ponzi scheme," they said. "We thought that Madoff was a friend for 25 years. That is why his betrayal was so painful. We should not be made victims twice over -- the first time by Madoff, and again by the trustee's actions."

Lawyers for Wilpon and Katz also said Picard ignored "numerous accounts that, in the trustee's parlance, were 'net losers,' which, according to our clients' analysis, total approximately $160 million."

A Major League Baseball spokesman declined to comment.

Madoff's estimated $65 billion Ponzi scheme was uncovered on December 11, 2008. But Picard said the Mets defendants should have seen red flags much earlier.

His lawsuit pointed, for example, to a Sterling consultant who advised Katz around 2003 that Madoff's returns did not make sense, and that he "couldn't make Bernie's math work."

Signs of improvement in the economy and strong corporate earnings have propelled stock prices but tapering volume, meager gains and declining numbers of advancing stocks pointed to waning buying interest at the end of the week.

Sectors that have posted strong gains in the recent rally, such as energy, materials and industrials, showed signs of profit-taking while lagging sectors as well as technology shares posted gains.

"The market has been getting more selective and the rotation is important," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. "I'm not sure people have it completely figured out yet."

The Dow Jones industrial average .DJI added 7.98 points, or 0.07 percent, to 12,070.24. The Standard & Poor's 500 .SPX gained 1.12 points, or 0.09 percent, to 1,308.22. The Nasdaq Composite .IXIC rose 12.81 points, or 0.47 percent, to 2,766.69.

The S&P's energy sector .GSPE, which has gained the most this year, was the biggest loser on the day, falling 0.6 percent. Dow component Chevron Corp (CVX.N) dropped 0.6 percent to $96.70, while Halliburton Co (HAL.N) fell 2.2 percent to $45.76.

Consumer discretionary shares .GSPD rose 0.5 percent after recent signs of life in the consumer. Shares in online retailer Amazon.com Inc (AMZN.O) climbed 1.8 percent to

$176.79.

Strength in technology helped pushed the Nasdaq to new 3-year highs, but the move was not broad-based as declining stocks outnumbered advancing ones.

Kaufman said growth prospects and the defensive nature of some areas in technology were attractive. "When you're in the right areas in tech, it's definitely the place to be," he said.

Both the Dow and the S&P 500 remain near their 2 1/2-year highs reached last Tuesday.

"From a short-term perspective, the Dow has resistance at the 12,050 level and support at the key 12,000 region," said Joseph Hargett, analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

Health insurer Aetna Inc (AET.N) forecast 2011 profit well above of Wall Street's target on Friday and increased its dividend, sending its shares 10.2 percent higher to $36.67.

Tyson Foods Inc (TSN.N) advanced 6 percent to $18.61 after the company said quarterly earnings surged 86 percent as it sold beef and pork at much higher prices.

Hundreds of thousands of Egyptians marched peacefully in Cairo on Friday to demand an immediate end to President Hosni Mubarak's 30-year rule.

U.S. employment rose by a meager 36,000 jobs in January, far less than expected, but the unemployment rate fell to 9.0 percent, its lowest level since April 2009.

(Editing by Kenneth Barry)

Despite the conflicting signals in the Labor Department's report on Friday, economists agreed a job market recovery was proceeding apace if not gaining speed. Many investors also saw the data as a sign of strength. Government bonds sold off, while the dollar rallied against the yen and the euro.

The payrolls gain reported by U.S. employers was a quarter of the 145,000 gain economists had expected. But a separate household survey, which is used to determine the jobless rate, showed nearly 600,000 more people reported they were employed.

That surge pushed the unemployment rate to 9 percent from 9.4 percent in December. It has dropped 0.8 percentage point since November, the biggest two-month decline since 1958.

"The payroll details and the drop in unemployment signal that there is an underlying improvement in the labor market buried under the snow and ice," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Still, the decline in the jobless rate is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

Fed Chairman Ben Bernanke on Thursday sounded a more upbeat note on the economy, but said "it will be several years before the unemployment rate has returned to a more normal level."

Economists estimated that blizzards, which pounded the Northeast in January and buried cities in knee-deep snow, reduced payrolls by between 50,000 and 100,000.

Signs of underlying strength in the labor market were also yielded by revisions to November and December payrolls, which showed 40,000 more jobs created than previously estimated.

The U.S. Treasury debt sell-off pushed the spread between two-year yields and 10-year yields to an 11-month high. Stocks on Wall Street were little changed in mid-afternoon.

JOBS MIGHT BE UNDERSTATED

Though the Labor Department's payroll count continues to show moderate growth, independent surveys have suggested a pick-up in the pace of job creation, raising concerns that the government might be missing growth coming from new businesses.

Labor Department chief economist Betsey Stevenson told reporters the count was likely falling short, just as faulty estimates of how many companies were created or destroyed led to an understatement of job losses during the recession.

"It's a challenge for the establishment survey to be able to accurately record the number of businesses that are starting up and the number of businesses that are shutting their doors," Stevenson said.

"Now that we are in a recovery it's most likely, but we won't know for sure until next year, that we are missing a lot of businesses that are opening their doors and that we're over estimating the number of business that might be shutting their doors."

Irving Picard, the court-appointed trustee recovering money for Madoff's victims, claims the partners at Sterling Equities, including the Mets' Fred Wilpon, "were simply in too deep -- having substantially supported their businesses with Madoff money -- to do anything but ignore the gathering clouds.

"Despite being on notice and having every resource at their disposal to investigate the litany of legitimate questions surrounding Madoff," Picard said, "the Sterling partners chose to do nothing."

In his sweeping 365-page complaint unsealed on Friday, Picard also said the baseball team itself had 16 Madoff accounts from which it withdrew more than $90 million of bogus profits to fund day-to-day operations.

The litigation has cast its own cloud over the immediate future of the Mets, which has had two straight losing seasons despite having one of the highest payrolls in Major League Baseball. Attendance at its two-year-old ballpark Citi Field fell 19 percent last year.

Wilpon, a co-founder at Sterling, repeated that he may sell part of the Mets as a result of Picard's litigation. The Mets also own a majority of SportsNet New York, better known as SNY, which broadcasts their games, with Time Warner Cable Inc and Comcast Corp also owning stakes.

"OUTRAGEOUS STRONG-ARM EFFORT," WILPON SAYS

In a joint statement, he and Sterling co-founder Saul Katz, who is Wilpon's brother-in-law, called Picard's lawsuit "an outrageous strong-arm effort" to coerce a settlement and ruin their reputations and businesses.

"Not one of the Sterling partners ever knew or suspected that Madoff ran a Ponzi scheme," they said. "We thought that Madoff was a friend for 25 years. That is why his betrayal was so painful. We should not be made victims twice over -- the first time by Madoff, and again by the trustee's actions."

A Major League Baseball spokesman declined to comment.

Madoff's estimated $65 billion Ponzi scheme was uncovered on December 11, 2008. Now 72, Madoff later pleaded guilty and is now serving a 150-year prison sentence in North Carolina.

Picard filed the lawsuit under seal in December. Wilpon had opposed making it public while settlement talks with the trustee were ongoing, but agreed to an unsealing after the talks broke down.

OTHER MADOFF LITIGATION

According to the complaint, Picard is seeking $295.5 million of fictitious profits from Sterling partners, family members and affiliates; $14.2 million of principal withdrawn in the 90 days prior to the collapse of Madoff's firm; and $12 million of other "fraudulent" transfers.

The lawsuit came one day after Picard unveiled embarrassing accusations in his $6.4 billion lawsuit accusing JPMorgan Chase & Co, once Madoff's main banker, of turning a blind eye to and being "thoroughly complicit" in Madoff's fraud so it could do more business with him and protect its investments.

Still, the S&P 500 index was on track for a gain of more than 2 percent for the week despite concerns about political turmoil in Egypt. The Dow also opened above the 12,000 mark for a third consecutive day.

U.S. employment rose by a meager 36,000 jobs in January, far less than expected, but the unemployment rate fell to 9.0 percent, its lowest level since April 2009.

"We may be facing a slight resistance (in indexes) but it is not a serious one. The market has the momentum to extend higher when we see good data like the ones we've been seeing before today," said Bryant Evans, portfolio manager at Cozad Asset Manage in Champaign, Illinois.

The Dow Jones industrial average .DJI was up 0.83 point, or 0.01 percent, at 12,063.09. The Standard & Poor's 500 Index .SPX was down 0.16 point, or 0.01 percent, at 1,306.94. The Nasdaq Composite Index .IXIC was up 8.22 points, or 0.30 percent, at 2,762.10.

Both the Dow and the S&P 500 remain near their 2 1/2-year highs reached last Tuesday.

"From a short-term perspective, the Dow has resistance at the 12,050 level and support at the key 12,000 region," said Joseph Hargett, analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

Among S&P 500 sectors, consumer and technology stocks rose while the energy and material stocks were hurt by a sharp drop in oil prices. U.S. crude oil futures were down 1.4 percent at $89.25 a barrel.

Health insurer Aetna Inc (AET.N) forecast 2011 profit well above of Wall Street's target on Friday and increased its dividend, sending its shares 9.3 percent higher to $36.38.

Tyson Foods Inc (TSN.N) advanced 5.9 percent to $18.59 after the company said quarterly earnings surged 86 percent as it sold beef and pork at much higher prices.

Hundreds of thousands of Egyptians marched peacefully in Cairo on Friday to demand an immediate end to President Hosni Mubarak's 30-year rule.

(Editing by Kenneth Barry)

Despite the conflicting signals in the Labor Department's report on Friday, economists agreed a recovery in the labor market was proceeding apace if not gaining speed. Many investors also saw the data as a sign of strength. Government bonds sold off and the dollar rallied against the yen and the euro.

The payrolls gain reported by U.S. employers was a quarter of the 145,000 gain economists had expected. But a separate household survey, which is used to determine the jobless rate, showed nearly 600,000 more people reported they were employed.

That surge in employment pushed the unemployment rate to 9 percent from 9.4 percent in December. The rate has dropped 0.8 percentage point since November, the biggest two-month decline since 1958.

"Looking at the two surveys together, they suggest that employment is going to pick up. Clearly it has lagged the other measures of activity, but we're in a jobs market recovery now," said Zach Pandl, U.S. economist at Nomura Securities International in New York.

Economists estimate the blizzard, which pounded the Northeast in January and buried cities in knee-deep snow, reduced payrolls by between 50,000 and 75,000.

The government also revised November and December payrolls to show 40,000 more jobs created than previously estimated.

OUTLOOK IMPROVING

Data on manufacturing and retail sales has suggested the economy's strong momentum continued into the new year. Economists said January's employment report, excluding the weather effect, was consistent with the economy growing above 3 percent.

The labor market has lagged the broader economy, which grew at a 3.2 percent annual rate in the fourth quarter.

"We see significant potential strength in this report and will be looking to see whether the drop in the unemployment rate persists," said Michael Gapen, an economist a Barclays Capital in New York.

"If it does, then it will be a further signal that underlying job growth is stronger than reported and conditions in labor markets are better than advertised by the establishment survey."

Last month's drop in the unemployment rate was encouraging because it reflected more people finding work, even after adjustments for updated population controls.

In recent months, a large portion of the decline in the jobless rate reflected people giving up the search for work, meaning they were no longer counted among the ranks of the unemployed.

Still, the decline is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

In a sweeping 365-page lawsuit unsealed on Friday, the trustee, Irving Picard, said the partners at Sterling Equities, including the Mets' Fred Wilpon, "were simply in too deep -- having substantially supported their businesses with Madoff money -- to do anything but ignore the gathering clouds."

Picard said the baseball team itself had 16 Madoff accounts from which it withdrew more than $90 million of bogus profits to fund day-to-day operations.

Wilpon and Saul Katz, who are Sterling's co-founders, in a joint statement called Picard's lawsuit "an outrageous strong-arm effort" to coerce a settlement and ruin their reputations and businesses.

They said they never knew or suspected that Madoff ran a Ponzi scheme, and will defend against the lawsuit.

Wilpon repeated that he may sell part of the Mets as a result of Picard's litigation.

The case is Picard v. Katz et al, U.S. Bankruptcy Court, Southern District of New York.

(Reporting by Jonathan Stempel in New York; Additional reporting by Ben Klayman in Detroit; Editing by Lisa Von Ahn)

Major indexes faced resistance after the Dow opened above the 12,000 mark for a third consecutive day.

U.S. employment rose by a meager 36,000 jobs in January, far less than expected, but the unemployment rate fell to its lowest level since April 2009.

"Despite the general bullishness in the market, we've been trading sideways for a while" because the market needs a small pullback to move beyond the technical ranges, said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

The Dow Jones industrial average .DJI was down 22.93 points, or 0.19 percent, at 12,039.33. The Standard & Poor's 500 Index .SPX was down 3.31 points, or 0.25 percent, at 1,303.79. The Nasdaq Composite Index .IXIC was down 0.70 points, or 0.03 percent, at 2,753.18.

Both the Dow and the S&P 500 remain near their 2 1/2-year highs reached last Tuesday.

"From a short-term perspective, the Dow has resistance at the 12,050 level and support at the key 12,000 region," said Joseph Hargett, analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

Hundreds of thousands of Egyptians marched peacefully in Cairo on Friday to demand an immediate end to President Hosni Mubarak's 30-year rule.

Health insurer Aetna Inc (AET.N) forecast 2011 profit well above of Wall Street's target on Friday and increased its dividend, sending its shares 9.5 percent higher to $36.42.

Tyson Foods Inc (TSN.N) advanced 6.5 percent to $18.70 after the company said quarterly earnings surged 86 percent as it sold beef and pork at much higher prices.

Weyerhaeuser Co (WY.N) returned to a profit in the fourth quarter, helped by a 25-percent jump in sales in its cellulose fibers business. The stock rose 3.9 percent to $24.50.

(Editing by Padraic Cassidy)

Despite the conflicting signals in the Labor Department's report on Friday, economists agreed a recovery in the labor market was proceeding apace if not gaining speed. Many investors also saw the data as a sign of strength. Government bonds sold off and the dollar rallied against the yen and the euro.

The payrolls gain reported by U.S. employers was a quarter of the 145,000 gain economists had expected. But a separate household survey, which is used to determine the jobless rate, showed nearly 600,000 more people reported they were employed.

That surge in employment pushed the unemployment rate to 9 percent from 9.4 percent in December. The rate has dropped 0.8 percentage point since November, the biggest two-month decline since 1958.

"Looking at the two surveys together, they suggest that employment is going to pick up. Clearly it has lagged the other measures of activity, but we're in a jobs market recovery now," said Zach Pandl, U.S. economist at Nomura Securities International in New York.

Economists estimate the blizzard, which pounded the Northeast in January and buried cities in knee-deep snow, reduced payrolls by between 50,000 and 75,000.

The government also revised November and December payrolls to show 40,000 more jobs created than previously estimated.

OUTLOOK IMPROVING

Data on manufacturing and retail sales has suggested the economy's strong momentum continued into the new year. Economists said January's employment report, excluding the weather effect, was consistent with the economy growing above 3 percent.

The labor market has lagged the broader economy, which grew at a 3.2 percent annual rate in the fourth quarter.

"We see significant potential strength in this report and will be looking to see whether the drop in the unemployment rate persists," said Michael Gapen, an economist a Barclays Capital in New York.

"If it does, then it will be a further signal that underlying job growth is stronger than reported and conditions in labor markets are better than advertised by the establishment survey."

Last month's drop in the unemployment rate was encouraging because it reflected more people finding work, even after adjustments for updated population controls.

In recent months, a large portion of the decline in the jobless rate reflected people giving up the search for work, meaning they were no longer counted among the ranks of the unemployed.

Still, the decline is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

The surprise forecast from the No 3. U.S. health insurer, supported by operating cost cuts and share buybacks, comes after rivals such as UnitedHealth Group Inc (UNH.N) and Humana Inc (HUM.N) have braced the market for at least the possibility of declining earnings per share in 2011.

"They're the first managed care company to guide up" for 2011, said David Heupel, a portfolio manager with Thrivent Investment Management, which holds Aetna shares. "It's a very surprising turn of events."

Aetna, which also posted a slightly higher-than-expected quarterly profit, forecast 2011 operating earnings, excluding items, of $3.70 per share to $3.80 per share. Analysts were looking for $3.27.

Aetna's forecast equates to slightly higher operating earnings per share in 2011 than the $3.68 per share it reported for 2010.

Aetna said moves to lower operating costs, changes to its pension plan and a lower share count from share buybacks are helping 2011 per-share results. Those positive factors are countering projected drops in membership and investment income, among other negative pressures.

The industry faces new spending rules this year from the healthcare overhaul law that may cut into profits and is factoring in a rebound in use of medical services after Americans avoided procedures in 2010 to save money.

"We're very pleased with our outlook," Chief Financial Officer Joseph Zubretsky said in an interview.

"The caution is that it's still a very difficult economy; employers have a lot of cost pressure; you're never exactly sure about a resurgence in utilization," the CFO said.

Even as other insurers have projected lower 2011 profit, many analysts have deemed those forecasts to be conservative.

"The overall take is that reform is not as bad as everybody has been fearing and there are ways to mitigate the headwinds from reform and enjoy nice year-over-year EPS growth," Sanford Bernstein analyst Ana Gupte said. "They're guiding obviously conservatively ... so there must be upside to the number."

With regard to the new U.S. rules, Zubretsky said: "We think we have our arms around them and know how they'll emerge financially, but there's risk to that as well."

Aetna shares were up $3.13, or 9.4 percent, to $36.40 in late morning trading on the New York Stock Exchange, after climbing as high as $38.08 earlier in the session -- their highest level in more than two years.

Shares of rival insurers, which have outperformed the broader market substantially in 2011, were mixed after Aetna's report. UnitedHealth shares were off 1.2 percent, while shares of WellPoint Inc (WLP.N) were up 1.4 percent.

INDUSTRY'S HIGHEST DIVIDEND

Nonfarm payrolls last month grew by just 36,000, the Labor Department said, far less than the 145,000 increase that economists had expected, but the jobless rate fell to 9.0 percent from 9.4 percent.

"The number is disappointing, but when we get disappointing numbers it permits investors to see an ongoing continuation of accommodative monetary policy." said Eric Teal, chief investment officer at First Citizens Bancshares Inc in Raleigh, North Carolina.

"There is a silver lining to some of the negative economic numbers."

Both the Dow and S&P 500 indexes remain near highs reached last Tuesday, levels not seen since June 2008.

The Dow Jones industrial average .DJI shed 4.47 points, or 0.04 percent, at 12,057.79. The Standard & Poor's 500 Index .SPX dipped 0.39 points, or 0.03 percent, at 1,306.71. The Nasdaq Composite Index .IXIC added 1.58 points, or 0.06 percent, at 2,755.46.

Protests in Egypt continued to loom in the background as tens of thousands of Egyptians prayed in Cairo's Liberation Square for an immediate end to President Hosni Mubarak's 30-year rule.

Health insurer Aetna Inc (AET.N) forecast 2011 profit well above of Wall Street's target on Friday and increased its dividend. Its shares surged 12.3 percent to $37.37.

Tyson Foods Inc (TSN.N) advanced 5.4 percent to $18.51 after the company said quarterly earnings surged 86 percent as it sold beef and pork at much higher prices.

(Additional reporting by Ryan Vlastelica; Editing by Padraic Cassidy)

The increase in nonfarm payrolls reported by the Labor Department on Friday was a quarter of the 145,000 increase that economists had expected.

But there were sharp differences in the information contained in the two surveys the Labor Department uses to generate the employment report.

Its poll of households showed nearly 600,000 more people reported they were employed, which explains the sharp drop in the jobless rate to 9.0 percent. The rate has come down 0.8 percentage points since November, the biggest two-month decline since 1958.

The survey of business establishments gave a more somber assessment, although the government noted that severe weather could have affected construction payrolls, which dropped 32,000 last month. There were also large declines in the employment of couriers and messengers.

A department official also said 886,000 people in the separate household survey said they did not work in January because of severe weather. That was nearly double the average number for January, according to Wells Fargo chief economist John Silvia.

"Weather did have an impact, construction was weak, below trend, and transportation and warehousing was also pretty soft and that could be affected by weather," said Sean Incremona, an economist at 4Cast in New York.

U.S. stock index futures fell on the data, while U.S. bond prices extended losses The dollar fell, then recovered against major currencies.

The modest jobs gains are at odds with other data for January, which had suggested employment growth was picking up and had raised hopes that the manufacturing-driven recovery was now spreading to other sectors of the economy.

UNEMPLOYMENT RATE DROPS

The drop in the unemployment rate was encouraging because it reflected more people finding work, even after adjustments for updated population controls. In recent months, a large portion of the decline in the jobless rate reflected people giving up the search for work, meaning they were no longer counted among the ranks of the unemployed.

Still, the decline is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

The labor market has lagged the broader economy, which grew at a 3.2 percent annual rate in the fourth quarter. Fed Chairman Ben Bernanke on Thursday acknowledged the pick-up in the recovery, but said "it will be several years before the unemployment rate has returned to a more normal level."

The government revised November and December payrolls to show 40,000 more jobs created than previously estimated.

"All economic data is two steps forward, one step back. We're certainly going in the right direction; however, nowhere near as fast as everyone wants us to," said Robert Lutts, president and chief investment officer at Cabot Money Management in Salem, Massachusetts.

The No 3. U.S. health insurer, which posted a slightly higher-than-expected quarterly profit, forecast 2011 operating earnings, excluding items, of $3.70 to $3.80 per share. Analysts were looking for $3.27.

Aetna's forecast equates to slightly higher operating earnings in 2011 than the $3.68 per share it reported in 2010. Forecasts from rivals such as UnitedHealth Group Inc and Humana Inc have included at least the possibility of declining profit in 2011 although many analysts have deemed those forecasts conservative.

The industry faces new spending rules this year from the healthcare overhaul law that may cut into profits and is factoring in a rebound in use of medical services after Americans avoided procedures in 2010 to save money.

Aetna's 2011 forecast includes an estimate of fewer shares outstanding than in 2010 -- about 384 million in 2011 vs. 403.3 million on average reported for the fourth quarter -- which appeared to explain in part why the forecast was ahead of estimates. The company did not include more details about its 2011 outlook ahead of a call with analysts later on Friday.

Goldman Sachs analyst Matthew Borsch said he expected Aetna was seeing less of an impact than he estimated from the new spending rules, which require insurers to meet certain thresholds for medical care expenses as opposed to administrative costs and profit.

Aetna said fourth-quarter profit rose 30 percent to $215.6 million, or 53 cents per share, from $165.9 million, or 38 cents per share, a year earlier.

Excluding items, earnings of 63 cents per share topped analysts' estimates by 1 cent, according to Thomson Reuters I/B/E/S.

Revenue slipped more than 2 percent to $8.54 billion.

INDUSTRY'S HIGHEST DIVIDEND

Rival health insurers have beaten analyst forecasts more substantially for the fourth quarter. Wells Fargo analyst Peter Costa said he suspected Aetna decided to boost operating expenses in the quarter as the company repositions under new Chief Executive Officer Mark Bertolini and for its new pharmacy benefit deal with CVS Caremark Corp.

Bertolini, who ascended to the CEO job at the end of last year, wants to diversify the health insurer into information technology and international markets.

Aetna said it had increased the cash dividend to 15 cents per share per quarter, up substantially from its previous payout of 4 cents per year.

The move follows a similarly sharp dividend increase from UnitedHealth last year [ID:nN26188186]. Wall Street has speculated that the largest insurers could return more cash to shareholders.

Citigroup analyst Carl McDonald noted Aetna's dividend yield of 1.8 percent was slightly better than UnitedHealth's 1.2 percent yield.

Nonfarm payrolls in January grew just 36,000, the Labor Department said, far less than the 145,000 increase that economists had expected, but the jobless rate fell to 9.0 percent.

"Right now, as a market participant myself, I am having trouble what to make of this data," said Dan Cook, senior market analyst at IG Markets in Chicago.

"It's hard to say -- we get a pullback like we did last Friday, but there is no follow through and all of a sudden they pop back up. I still think the bias is upward."

Both the Dow and S&P 500 have remained near highs reached last Tuesday that had not been seen since June 2008.

S&P 500 futures added 2.2 points and were slightly above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 16 points, and Nasdaq 100 futures gained 1.5 points.

Health insurer Aetna Inc (AET.N) forecast 2011 profit well above of Wall Street's target on Friday and increased its dividend. Its shares surged 13.3 percent to $37.69 in premarket trade.

Bank of America Corp (BAC.N) added 0.3 percent to $14.47 in premarket trade dafter it agreed to sell its Balboa insurance portfolio to Australia's QBE Insurance (QBE.AX) for more than $700 million in the latest asset sale by the U.S. lender. [nL3E7D32JN]

Weyerhaeuser Co (WY.N) added 2.4 percent to $24.15 after the company returned to a profit in the fourth quarter, helped by a 25 percent jump in sales in its cellulose fibers business.

Tyson Foods Inc's (TSN.N) advanced 5.1 percent to $18.46 after the company said quarterly earnings surged 86 percent as it sold beef and pork at much higher prices.

(Editing by Padraic Cassidy)

The increase in nonfarm payrolls reported by the Labor Department on Friday was a quarter of the 145,000 increase that economists had expected.

The government noted that severe weather could have affected construction payrolls, which dropped 32,000 last month. There were also large declines in the employment of couriers and messengers.

A department official also said 886,000 people in the separate household survey said they did not work in January because of severe weather.

"Weather did have an impact, construction was weak, below trend, and transportation and warehousing was also pretty soft and that could be affected by weather," said Sean Incremona, an economist at 4Cast in New York.

U.S. stock index futures fell on the data, while U.S. bond prices extended losses The dollar fell, then recovered against major currencies.

The modest jobs gains are at odds with other data for January, which had suggested employment growth was picking up and had raised hopes that the manufacturing-driven recovery was now spreading to other sectors of the economy.

UNEMPLOYMENT RATE DROPS

There was some good news in the employment report as the jobless rate fell to 9 percent from 9.4 percent in December. The household survey from which the unemployment rate is derived showed the number of unemployed dropped by about 600,000 last month.

The unemployment rate had previously declined largely as a result of people giving up the search for work, but in January the labor force was unchanged, even after adjustments for updated population controls.

Still, the decline is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy, as discouraged jobseekers are expected to return to the labor market.

The labor market has lagged the broader economy, which grew at a 3.2 percent annual rate in the fourth quarter. Fed Chairman Ben Bernanke on Thursday acknowledged the pick-up in the recovery, but said "it will be several years before the unemployment rate has returned to a more normal level."

The government revised November and December payrolls to show 40,000 more jobs created that previously estimated.

"All economic data is two steps forward, one step back. We're certainly going in the right direction; however, nowhere near as fast as everyone wants us to," said Robert Lutts, president and chief investment officer at Cabot Money Management in Salem, Massachusetts.

The Labor Department also finalized its annual benchmark revisions to its payroll series, which showed the level of employment for March 2010 overstated by 378,000.

The No 3. U.S. health insurer, which posted a slightly higher-than-expected quarterly profit, forecast 2011 operating earnings, excluding items, of $3.70 to $3.80 per share. Analysts were looking for $3.27.

Aetna's forecast equates to slightly higher operating earnings in 2011 than the $3.68 per share it reported in 2010. Forecasts from rivals such as UnitedHealth Group Inc and Humana Inc have included at least the possibility of declining profit in 2011 although many analysts have deemed those forecasts conservative.

The industry faces new spending rules this year from the healthcare overhaul law that may cut into profits and is factoring in a rebound in use of medical services after Americans avoided procedures in 2010 to save money.

Aetna's 2011 forecast includes an estimate of fewer shares outstanding than in 2010 -- about 384 million in 2011 vs. 403.3 million on average reported for the fourth quarter -- which appeared to explain in part why the forecast was ahead of estimates. The company did not include more details about its 2011 outlook ahead of a call with analysts later on Friday.

Goldman Sachs analyst Matthew Borsch said he expected Aetna was seeing less of an impact than he estimated from the new spending rules, which require insurers to meet certain thresholds for medical care expenses as opposed to administrative costs and profit.

Aetna said fourth-quarter profit rose 30 percent to $215.6 million, or 53 cents per share, from $165.9 million, or 38 cents per share, a year earlier.

Excluding items, earnings of 63 cents per share topped analysts' estimates by 1 cent, according to Thomson Reuters I/B/E/S.

Revenue slipped more than 2 percent to $8.54 billion.

INDUSTRY'S HIGHEST DIVIDEND

Rival health insurers have beaten analyst forecasts more substantially for the fourth quarter. Wells Fargo analyst Peter Costa said he suspected Aetna decided to boost operating expenses in the quarter as the company repositions under new Chief Executive Officer Mark Bertolini and for its new pharmacy benefit deal with CVS Caremark Corp.

Bertolini, who ascended to the CEO job at the end of last year, wants to diversify the health insurer into information technology and international markets.

Aetna said it had increased the cash dividend to 15 cents per share per quarter, up substantially from its previous payout of 4 cents per year.

The move follows a similarly sharp dividend increase from UnitedHealth last year [ID:nN26188186]. Wall Street has speculated that the largest insurers could return more cash to shareholders.

Citigroup analyst Carl McDonald noted Aetna's dividend yield of 1.8 percent was slightly better than UnitedHealth's 1.2 percent yield.

U.S. employment probably posted a fourth straight month of gains in January offering more evidence of a broadening economic recovery, though the jobless rate likely rose. The employment report is due at 8:30 a.m. EST.

The government is expected to report that nonfarm payrolls grew by 145,000, according to a Reuters survey of economists, after adding 103,000 in December. The unemployment rate was seen ticking up 0.1 percent to 9.5 percent.

"If it remains weak, the market perceives that Bernanke will continue to flood the market with liquidity, and a good economic number is good because that means the economy will be strengthening," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"But we are right at this high, so we are right at this resistance point ... whenever you are at a resistance point, you've got some degree of risk."

Both the Dow and S&P 500 have remained near highs reached last Tuesday that had not been seen since June 2008.

Protests continued in Egypt continued as tens of thousands of Egyptians prayed in Cairo's Liberation Square for an immediate end to President Hosni Mubarak's 30-year rule.

S&P 500 futures added 1.6 point and were slightly above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 12 points, and Nasdaq 100 futures gained 1.25 points.

Health insurer Aetna Inc (AET.N) forecast 2011 profit well above of Wall Street's target on Friday and increased its dividend. Its shares rose 9.1 percent to $36.30 in premarket trade.

Bank of America Corp (BAC.N) added 0.4 percent to $14.49 premarket after it agreed to sell its Balboa insurance portfolio to Australia's QBE Insurance (QBE.AX) for more than $700 million in the latest asset sale by the U.S. lender. [nL3E7D32JN]

Weyerhaeuser Co (WY.N) returned to a profit in the fourth quarter, helped by a 25 percent jump in sales in its cellulose fibers business.

European shares rose slightly in early trade, led by banks, after a late rally on Wall Street, spurred by optimism about the recovery and hopes that U.S. monetary policy will continue to support equities. .EU

Japan's Nikkei .N225 gained 1.1 percent, lifted by steelmakers that surged on news of a megamerger in the sector.

(Reporting by Chuck Mikolajczak; editing by Jeffrey Benkoe)

The government is expected to report on Friday that nonfarm payrolls grew 145,000, according to a Reuters survey, after adding 103,000 in December. But severe snow storms that slammed large parts of the nation could result in a much lower figure.

All of the anticipated job gains are expected to have been generated by the private sector and would add to other data suggesting that the manufacturing-driven recovery is now spreading to other sectors of the economy.

The Labor Department will release its closely watched employment report at 8:30 a.m. ET.

"All the signals are pointing to a much improved labor market compared with last year and a strong payrolls report would be a nice confirmation that things are certainly headed in the right direction," said Omair Sharif, an economist at RBS in Stamford, Connecticut.

Still, the employment gains would be insufficient to prevent the jobless rate from edging up to 9.5 percent from 9.4 percent in November and too slim to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

The labor market has lagged the broader economy, which grew at a 3.2 percent annual rate in the fourth quarter. Fed Chairman Ben Bernanke on Thursday acknowledged the pick-up in the recovery, but said "it will be several years before the unemployment rate has returned to a more normal level."

WEATHER COULD DAMPEN PAYROLLS

Economists believe the weather could have restrained payroll growth by 15,000 to 70,000 positions in January, although the way in which the government conducts its count could temper any storm-related impact.

For severe weather to reduce the payroll count, employees have to be off work for the entire reference pay period and not paid for the time missed. Workers who receive any pay, even if just for one hour, during the pay period that includes January 12 would be counted as employed.

"My view is that the storms interrupted the hiring process. They have not diminished the demand for labor, but made it that much more difficult for both the job seekers and employers to consummate the hiring transaction," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.

The jobless rate dropped sharply in December, but that partly reflected discouraged workers leaving the labor force. Economists viewed the decline as overstated and expect it rose a touch in January.

Further increases could be in store in the months ahead as the labor market gains strength, which could spur some discouraged workers to come back into the labor force.

"We have a lot of workers on the sidelines. They will come back it when the labor market recovers," said Stephen Bronars, senior economist at Welch Consulting in Washington. "The effect is that the unemployment rate is going to stay above a level we would consider acceptable for a longer period of time."

A persistently high unemployment rate could put in jeopardy President Barack Obama's chances of winning a second-term in office in the 2012 election.

"Beyond a certain point ... the United States would be forced into a position of defaulting on its debt. And the implications of that on our financial system, our fiscal policy and our economy would be catastrophic," he told the National Press Club.

Bernanke coupled his warning with a call for the Obama administration and Congress to put in place a credible plan to curb future budget deficits.

He also offered a moderately more optimistic assessment of the economy's prospects than in other recent remarks, although he made clear the recovery still needs support from the Fed.

Some Republican leaders intend to use the need to raise the statutory debt ceiling as leverage for spending cuts. The Obama administration has said the nation would likely hit the limit between early April and late May.

If Congress does not raise the limit in a timely way, the government could be forced to scale back operations. A failure to lift the limit could raise the specter of a first-ever U.S. debt default and push interest rates up sharply.

Financial markets have not yet shown any nervousness over the debt limit, which has typically been raised after political grumbling, and Bernanke said the chances of a default were "very remote."

Still, his comments echoed dire warnings issued by Treasury Secretary Timothy Geithner and other Obama administration officials, who have also said failure to raise the debt ceiling could be "catastrophic."

The Fed chairman called on lawmakers not to hold the issue hostage to the contentious debate over how best to rein in record budget gaps.

"I would very much urge Congress not to focus on the debt limit as being the bargaining chip in this discussion, but rather to address directly the spending and tax issues that we have to deal with in order to make progress on this fiscal situation," Bernanke said.

FED MISSING BOTH MANDATE TARGETS

In discussing the recovery, Bernanke provided a modestly more rosy outlook than he has in other recent appearances, citing gains in household spending, improved consumer and business confidence and stepped-up bank lending as signs 2011 may bring stronger growth than 2010.

But he made clear Fed officials were not yet satisfied.

"Although economic growth will probably increase this year, we expect the unemployment rate to remain stubbornly above, and inflation to remain stubbornly below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate," he said.

Bernanke's comments on the economy suggest the Fed believes it has plenty of time to let its policies boost growth and pull down a high unemployment rate before it needs to worry about tightening financial conditions to keep inflation in check.

By 0950 GMT, futures for the S&P 500 and the Dow Jones were up 0.1 percent, while Nasdaq futures were flat.

Recent upbeat economic data, including encouraging U.S. weekly jobless claims data on Thursday, reinforced confidence of a strong reading for the payroll numbers, due at 1330 GMT.

A Reuters poll expected the report to show payrolls rose by 145,000 in January, up for the fourth straight month, though the jobless rate likely edged up.

Sentiment for equities was also lifted by expectations that U.S. monetary policy is likely to stay accommodative for the time being, following comments from U.S. Federal Reserve chairman Ben Bernanke, who gave an upbeat assessment of the economy but said it still needed help from the central bank.

U.S. stocks ended near the session's highs on Thursday, with investors favoring shares of retailers following encouraging chain-store sales.

Companies scheduled to release earnings on Friday include Aetna (AET.N), with focus on the health insurer's outlook for 2011. Wall Street expects the firm to post a profit of 62 cents per share, up from 40 cents per share a year ago.

Bank of America (BAC.N) agreed to offload its Balboa insurance portfolio to Australia's QBE Insurance (QBE.AX) for more than $700 million, the latest in a string of asset sales by the U.S. lender as it recovers from the global credit crisis.

Boeing Co (BA.N) and EADS (EAD.PA) launched dueling advertising campaigns on Thursday as the companies' bitter battle to capture U.S. refueling aircraft orders valued at up to $50 billion neared another pivotal point.

Political unrest in Egypt will be closely monitored, as a senior U.S. official said Washington was discussing with Egyptians different scenarios, including one in which Mubarak resigns immediately.

In Europe, the pan-European FTSEurofirst 300 .FTEU3 index of top shares rose 0.5 percent in early trade, with heavyweight banks among the gainers.

(Reporting by Harpreet Bhal; Editing by Erica Billingham)

The government is expected to report on Friday that nonfarm payrolls grew 145,000, according to a Reuters survey, after adding 103,000 in December. But severe snow storms that slammed large parts of the nation could result in a much lower figure.

All of the anticipated job gains are expected to have been generated by the private sector and would add to other data suggesting that the manufacturing-driven recovery is now spreading to other sectors of the economy.

The Labor Department will release its closely watched employment report at 8:30 a.m. ET.

"All the signals are pointing to a much improved labor market compared with last year and a strong payrolls report would be a nice confirmation that things are certainly headed in the right direction," said Omair Sharif, an economist at RBS in Stamford, Connecticut.

Still, the employment gains would be insufficient to prevent the jobless rate from edging up to 9.5 percent from 9.4 percent in November and too slim to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

The labor market has lagged the broader economy, which grew at a 3.2 percent annual rate in the fourth quarter. Fed Chairman Ben Bernanke on Thursday acknowledged the pick-up in the recovery, but said "it will be several years before the unemployment rate has returned to a more normal level."

WEATHER COULD DAMPEN PAYROLLS

Economists believe the weather could have restrained payroll growth by 15,000 to 70,000 positions in January, although the way in which the government conducts its count could temper any storm-related impact.

For severe weather to reduce the payroll count, employees have to be off work for the entire reference pay period and not paid for the time missed. Workers who receive any pay, even if just for one hour, during the pay period that includes January 12 would be counted as employed.

"My view is that the storms interrupted the hiring process. They have not diminished the demand for labor, but made it that much more difficult for both the job seekers and employers to consummate the hiring transaction," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.

The jobless rate dropped sharply in December, but that partly reflected discouraged workers leaving the labor force. Economists viewed the decline as overstated and expect it rose a touch in January.

Further increases could be in store in the months ahead as the labor market gains strength, which could spur some discouraged workers to come back into the labor force.

"We have a lot of workers on the sidelines. They will come back it when the labor market recovers," said Stephen Bronars, senior economist at Welch Consulting in Washington. "The effect is that the unemployment rate is going to stay above a level we would consider acceptable for a longer period of time."

A persistently high unemployment rate could put in jeopardy President Barack Obama's chances of winning a second-term in office in the 2012 election.

"Beyond a certain point ... the United States would be forced into a position of defaulting on its debt. And the implications of that on our financial system, our fiscal policy and our economy would be catastrophic," he told the National Press Club.

Bernanke coupled his warning with a call for the Obama administration and Congress to put in place a credible plan to curb future budget deficits.

He also offered a moderately more optimistic assessment of the economy's prospects than in other recent remarks, although he made clear the recovery still needs support from the Fed.

Some Republican leaders intend to use the need to raise the statutory debt ceiling as leverage for spending cuts. The Obama administration has said the nation would likely hit the limit between early April and late May.

If Congress does not raise the limit in a timely way, the government could be forced to scale back operations. A failure to lift the limit could raise the specter of a first-ever U.S. debt default and push interest rates up sharply.

Financial markets have not yet shown any nervousness over the debt limit, which has typically been raised after political grumbling, and Bernanke said the chances of a default were "very remote."

Still, his comments echoed dire warnings issued by Treasury Secretary Timothy Geithner and other Obama administration officials, who have also said failure to raise the debt ceiling could be "catastrophic."

The Fed chairman called on lawmakers not to hold the issue hostage to the contentious debate over how best to rein in record budget gaps.

"I would very much urge Congress not to focus on the debt limit as being the bargaining chip in this discussion, but rather to address directly the spending and tax issues that we have to deal with in order to make progress on this fiscal situation," Bernanke said.

FED MISSING BOTH MANDATE TARGETS

In discussing the recovery, Bernanke provided a modestly more rosy outlook than he has in other recent appearances, citing gains in household spending, improved consumer and business confidence and stepped-up bank lending as signs 2011 may bring stronger growth than 2010.

But he made clear Fed officials were not yet satisfied.

"Although economic growth will probably increase this year, we expect the unemployment rate to remain stubbornly above, and inflation to remain stubbornly below, the levels that Federal Reserve policymakers have judged to be consistent over the longer term with our mandate," he said.

Bernanke's comments on the economy suggest the Fed believes it has plenty of time to let its policies boost growth and pull down a high unemployment rate before it needs to worry about tightening financial conditions to keep inflation in check.

By 0950 GMT, futures for the S&P 500 and the Dow Jones were up 0.1 percent, while Nasdaq futures were flat.

Recent upbeat economic data, including encouraging U.S. weekly jobless claims data on Thursday, reinforced confidence of a strong reading for the payroll numbers, due at 1330 GMT.

A Reuters poll expected the report to show payrolls rose by 145,000 in January, up for the fourth straight month, though the jobless rate likely edged up.

Sentiment for equities was also lifted by expectations that U.S. monetary policy is likely to stay accommodative for the time being, following comments from U.S. Federal Reserve chairman Ben Bernanke, who gave an upbeat assessment of the economy but said it still needed help from the central bank.

U.S. stocks ended near the session's highs on Thursday, with investors favoring shares of retailers following encouraging chain-store sales.

Companies scheduled to release earnings on Friday include Aetna (AET.N), with focus on the health insurer's outlook for 2011. Wall Street expects the firm to post a profit of 62 cents per share, up from 40 cents per share a year ago.

Bank of America (BAC.N) agreed to offload its Balboa insurance portfolio to Australia's QBE Insurance (QBE.AX) for more than $700 million, the latest in a string of asset sales by the U.S. lender as it recovers from the global credit crisis.

Boeing Co (BA.N) and EADS (EAD.PA) launched dueling advertising campaigns on Thursday as the companies' bitter battle to capture U.S. refueling aircraft orders valued at up to $50 billion neared another pivotal point.

Political unrest in Egypt will be closely monitored, as a senior U.S. official said Washington was discussing with Egyptians different scenarios, including one in which Mubarak resigns immediately.

In Europe, the pan-European FTSEurofirst 300 .FTEU3 index of top shares rose 0.5 percent in early trade, with heavyweight banks among the gainers.

(Reporting by Harpreet Bhal; Editing by Erica Billingham)

The government is expected to report on Friday that nonfarm payrolls grew 145,000, according to a Reuters survey, after adding 103,000 in December. But severe snow storms that slammed large parts of the nation could result in a much lower figure.

All of the anticipated job gains are expected to have been generated by the private sector and would add to other data suggesting that the manufacturing-driven recovery is now spreading to other sectors of the economy.

The Labor Department will release its closely watched employment report at 8:30 a.m. ET.

"All the signals are pointing to a much improved labor market compared with last year and a strong payrolls report would be a nice confirmation that things are certainly headed in the right direction," said Omair Sharif, an economist at RBS in Stamford, Connecticut.

Still, the employment gains would be insufficient to prevent the jobless rate from edging up to 9.5 percent from 9.4 percent in November and too slim to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

The labor market has lagged the broader economy, which grew at a 3.2 percent annual rate in the fourth quarter. Fed Chairman Ben Bernanke on Thursday acknowledged the pick-up in the recovery, but said "it will be several years before the unemployment rate has returned to a more normal level."

WEATHER COULD DAMPEN PAYROLLS

Economists believe the weather could have restrained payroll growth by 15,000 to 70,000 positions in January, although the way in which the government conducts its count could temper any storm-related impact.

For severe weather to reduce the payroll count, employees have to be off work for the entire reference pay period and not paid for the time missed. Workers who receive any pay, even if just for one hour, during the pay period that includes January 12 would be counted as employed.

"My view is that the storms interrupted the hiring process. They have not diminished the demand for labor, but made it that much more difficult for both the job seekers and employers to consummate the hiring transaction," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.

The jobless rate dropped sharply in December, but that partly reflected discouraged workers leaving the labor force. Economists viewed the decline as overstated and expect it rose a touch in January.

Further increases could be in store in the months ahead as the labor market gains strength, which could spur some discouraged workers to come back into the labor force.

"We have a lot of workers on the sidelines. They will come back it when the labor market recovers," said Stephen Bronars, senior economist at Welch Consulting in Washington. "The effect is that the unemployment rate is going to stay above a level we would consider acceptable for a longer period of time."

A persistently high unemployment rate could put in jeopardy President Barack Obama's chances of winning a second-term in office in the 2012 election.