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Friday's gains brought stocks to near levels since the Libyan crisis erupted, indicating markets have been largely resilient to oil's 12 percent surge in the past two weeks.

A reasonably strong correlation between Asian equities and oil shows both track the broad growth story except for periods when markets have grown nervous of a price shock and the resulting spillover impact on inflation.

The region is a big importer of oil.

But the pull-back in oil from 2-1/2 year highs following two days of strong gains that sent a key technical indicator to its most overbought level in more than five years for Brent crude alleviated such concerns.

A strong Wall Street close and hopes that U.S. jobs data due later may show strong gains and reinforce expectations of a steady improvement in the world's biggest economy boosted stocks with Tokyo .N225 and Seoul .KS11 leading gains.

But further gains on Wall Street looked difficult with the S&P 500 Index .SPX set to run into strong resistance around the 1,340-60 zone.

The broader MSCI index of Asia-ex Japan stocks .MIAPJ0000PUS rose more than a percent, extending its weekly gains to nearly three percent.

"Substantial gains are expected in morning trade on hopes for good jobs data in the U.S., but the market may trim gains toward the close because investors remain cautious until they actually see the figures," said Shinichiro Matsushita, a market analyst at Daiwa Securities.

The median estimate is for a gain of 185,000 jobs, according to economists polled by Reuters, but market sentiment was leaning toward a number above 200,000, traders said.

Notwithstanding the Libyan crisis, Asian markets have generally underperformed this year as inflows into emerging market funds have slowed sharply due to concerns of inflation and crowded positioning in some of the region's markets.

But the latest oil driven sell-off has cleaned up some of the technical positioning and enhanced the attractiveness of certain markets such as Korea, according to Barclays Capital strategists.

Foreign investors were net buyers for a second straight day in the stock market, the strongest since January.

EURO RISES

Gains in stocks diminished the safe-haven appeal for gold and U.S. Treasuries with two-year debt yields rising by as much as eight basis points to 0.77 percent.

Nonfarm payrolls increased 185,000, according to a Reuters survey, after a measly 36,000 jobs in January.

The survey was conducted before strong signals this week that the fragile U.S. labor market was recovering more quickly from the worst recession since the Great Depression.

The peak of monthly employment last May was when payrolls were being boosted by government hiring for a census. Still, February's expected gains are unlikely to sway the Federal Reserve from its ultra-easy monetary policies.

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

"We have moved into the expansion phase of the economic cycle and the economy is self-sustaining," said Brian Levitt, an economist at OppenheimerFunds in New York.

U.S. payrolls in recent months have fallen far short of economists' expectations, despite labor market indicators -- including weekly data on initial claims for jobless benefits and employment measures in surveys by the Institute of Supply Management -- pointing to a faster pace of job creation.

Analysts, however, are increasingly convinced that a foundation is now in place for solid job growth going forward.

"Businesses are actually beginning to realize that they need to hire more aggressively because we do think demand is going to continue strengthening through out the year," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

Despite the expected bounce in payrolls, the unemployment rate is seen ticking up to 9.1 percent from 9.0 percent in January as once discouraged jobseekers return to the labor force to look for work, a sign of confidence in the economy.

The jobless rate has dropped 0.8 percentage point since November, the biggest two-month decline since 1958. The rate is derived from a survey of households, while the job creation figure comes from a separate survey of employers.

FED WATCHING JOBLESS RATE

The unemployment rate is being closely watched by the Fed and could well determine the timing of the U.S. central bank's first interest rate hike. The Fed, which meets on March 15, has held overnight lending rates near zero since December 2008.

Economists believe the Fed will want to see payroll gains in excess of 200,000 for at least six to nine months and a significant decline in unemployment before starting to withdraw its massive monetary support from the economy.

"If we start to add enough jobs, sufficient to lower the unemployment rate, I think the Fed will feel a little more comfortable in easing off the throttle," said Sweet.

As oil paused from its recent climb, the market's focus shifted to stronger-than-expected economic data a day before the February U.S. employment report.

The median estimate is for a gain of 185,000 jobs, according to economists polled by Reuters, but market sentiment was leaning toward a number above 200,000, traders said.

"There are still concerns about high oil prices but the bottom line is, the U.S. economy is improving. We continue to get confirmations of that, and it's a good sentiment heading into Friday's numbers," said Ryan Detrick, technical analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

The Dow Jones industrial average .DJI was up 191.40 points, or 1.59 percent, at 12,258.20. The Standard & Poor's 500 Index .SPX was up 22.53 points, or 1.72 percent, at 1,330.97. The Nasdaq Composite Index .IXIC was up 50.67 points, or 1.84 percent, at 2,798.74.

The Dow and S&P 500 posted their biggest one-day gains since December 1.

However, volume continued to be below average on days when the market rallies, causing some traders to be skeptical about the durability of the rally. About 7.99 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below last year's daily average of 8.47 billion.

The put-to-call ratio in the options market also didn't change much despite the day's rally as traders continued to hedge against a potential drop in the market.

"As much as investors are excited about a pullback so that they can jump in, they are just as concerned about how quickly this market can turn," Detrick said.

Initial jobless claims fell last week to 368,000 -- a 2-1/2 year low -- one day after a robust report on private-sector hiring.

The Institute for Supply Management's non-manufacturing index rose to 59.7 in February, slightly above forecasts and higher than the January result.

Industrial stocks led the market higher, boosted by a weaker dollar and an improving outlook for global demand. The S&P industrial index .GSPI gained 2.4 percent, with Caterpillar Inc (CAT.N) up 3.2 percent to $104.25.

Stocks have shown resilience in the face of economic headwinds. The broad S&P 500 is down only about 1 percent from a peak in late February after falling around 3 percent due to growing violence in oil-producer Libya.

The Arab League said a peace plan for Libya was under consideration. The plan put forth by Venezuelan President Hugo Chavez, if successful, could remove a major headwind for equities.

Oil prices retreated from near 2-1/2 year highs. Brent crude futures fell $1.56 to settle at $114.79 after Venezuela's proposed plan to end Libya's crisis set off profit-taking.

Speaking exclusively to Reuters Insider, Gross said: "Let's cut the deficit, but let's do it gradually," so that real economic growth can take hold.

Lawmakers struck a deal on Wednesday that delays for two weeks a showdown over the current year's spending plan. Republicans are seeking some $61 billion of cuts to help reduce the deficit, estimated to hit $1.65 trillion this year, but Senate Democrats are preparing a measure that would keep funding essentially flat.

The first negotiations on the budget are expected to take place on Thursday, according to congressional aides. Wednesday's deal averted a government shutdown as funding for daily operations had been due to expire on Friday, March 4.

Gross, who oversees $1.2 trillion of assets at the Newport Beach, Calif.-based, investment management firm, said he does not expect a credible deficit reduction plan until after the 2012 elections.

Addressing the risk to markets from the mushrooming budget deficit, Gross said Treasuries are moving toward being "less of a triple-A credit," echoing a concern many bond investors have how long the United States can retain the highest possible rating designated by credit rating agencies.

Gross, who has been avoiding U.S. government debt securities recently, said he suspects the yield on Treasuries will move higher this summer after the Federal Reserve brings an end to its $600 billion Treasury purchasing program.

In a more normal environment, the yield on benchmark U.S. 10-year notes would more closely track the nominal rate of gross domestic product growth, which Gross estimates to be roughly 5 percent.

A yield that high is not likely in this environment, but a 4.0 percent yield for 10-year notes is a "rational expectation" if the Fed "disappears as the buyer of last resort," Gross said. The note currently yields 3.56 percent.

Turning his attention away from the situation, Gross saw European Central Bank President Jean Claude Trichet's comments Thursday on the inflation threat in the euro zone as signaling a near-term rate hike but not the beginning of a trend.

Trichet's use of the term "strong vigilance" following the ECB's monthly policy meeting was "tough talk, there's no doubt about it," Gross said.

The ECB left benchmark rates for the region unchanged at a record low 1.0 percent. Gross said he now expects 25 basis points of increase thanks to high prices for oil and other commodities, which feature more prominently in the ECB's inflation math than in the Fed's.

Still, Gross said sufficient headwinds remain in the euro zone recovery to prevent any near-term rate increase from becoming a trend any time soon. (Reporting by Dan Burns, Jennifer Rogers and Jennifer Ablan)

The labor market outlook was also enhanced by another report on Thursday showing steady productivity growth in the fourth quarter, implying that employers might be forced to step-up hiring to meet growing demand.

Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 368,000, the lowest since May 2008, the Labor Department said. Economists had forecast claims rising to 398,000.

"The downward trend in claims suggests that the labor market is getting back to health," said Krishen Rangasamy, an economist at CIBC World Markets in Toronto.

Stock index futures rallied on the data, while prices for government debt extended losses. The dollar rose against the yen.

The claims data falls outside the survey period for the government's closely watched employment report for February due for release on Friday. Nonfarm payrolls probably increased 185,000 after snowstorms depressed growth to a paltry 36,000 jobs in January, according to a Reuters survey.

Declining claims suggest the economic recovery is gaining traction and fewer layoffs should help it weather rising crude oil prices.

Reports from U.S. retailers on Wednesday suggested consumers so far were withstanding a sharp rise in gasoline prices. Costco Wholesale Club, teen apparel retailer Zumiez and other chains reported February sales results that beat Wall Street's expectations.

CLAIMS BELOW KEY LEVEL

Claims have now held below the 400,000 threshold for a second straight week. Claims below that level are widely viewed as signaling strong jobs growth and economists believe it is only a matter of time before this is reflected in the payrolls numbers.

A Labor Department official said there was nothing unusual in the state level data, adding that no states were estimated.

The four-week moving average of unemployment claims -- a better measure of underlying trends - dropped 12,750 to 388,500 last week, the lowest since July 2008.

In a second report, the department said nonfarm productivity increased at an unrevised 2.6 percent annual rate in the fourth quarter, in line with economists' expectations.

Productivity, a measure of hourly output per worker, grew at a 2.3 percent pace in the third quarter.

Productivity grew rapidly as the economy emerged from the worst recession since the Great Depression of the 1930s, peaking at an 8.9 percent rate in the second quarter of 2009 as businesses slashed costs by relying on a small pool of workers.

The pace is slowing, which economists say will compel businesses to soon add more workers to expand production.

Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 368,000, the lowest since May 2008, the Labor Department said.

Economists polled by Reuters had forecast claims rising to 398,000. The prior week's figure was revised down to 388,000 from the previously reported 391,000.

The claims data falls outside the survey period for the government's closely watched employment report for February due for release on Friday. Nonfarm payrolls probably increased 185,000 after snowstorms depressed growth to a paltry 36,000 jobs in January, according to a Reuters survey.

Claims have now held below the 400,000 threshold for a second straight week. Claims below that level are widely viewed as signaling strong jobs growth and economists believe it is only a matter of time before this is reflected in the payrolls numbers.

A Labor Department official said there was nothing unusual in the state level data, adding that no states were estimated.

The four-week moving average of unemployment claims -- a better measure of underlying trends - dropped 12,750 to 388,500 last week, the lowest since July 2008.

The number of people still receiving benefits under regular state programs after an initial week of aid fell 59,000 to 3.77 million in the week ended February 19.

Economists had expected so-called continuing claims to edge up to 3.80 million from a previously reported 3.79 million.

The number of people on emergency unemployment benefits dropped 32,094 to 3.65 million in the week ended February 12, the latest week for which data is available. A total of 9.24 million people were claiming unemployment benefits during that period under all programs.

Oil prices slipped on Thursday, with U.S. crude oil futures down 39 cents at $101.84 a barrel, after the Arab League said a peace plan for Libya was under consideration.

Asian stocks rebounded while European shares were up 0.7 percent in morning trade on optimism over the health of the U.S. economy following forecast-beating data and as oil prices retreated. .EU

Valero Energy Corp (VLO.N), the largest U.S. independent refiner, said on Wednesday a trading loss will hurt its first-quarter earnings.

Rupert Murdoch's News Corp (NWSA.O) took a big step toward securing its prized $14 billion buyout of BSkyB (BSY.L) when Britain accepted its proposals to alleviate competition concerns.

U.S. and Brazilian beer drinkers are paying higher prices and moving to more expensive brands, according to Anheuser-Busch InBev (ABI.BR), the world's largest brewer.

Twitter has no plan to go public in the near future and does not need additional funds because it is making money, the co-founder of the popular microblogging site said.

On the earnings front, investors awaited results from Big Lots (BIG.N), H.J. Heinz Co. (HNZ.N), The Kroger Co. (KR.N) and Novell (NOVL.O).

On the macro front, the focus will be on weekly jobless claims as well as on the Institute for Supply Management's February non-manufacturing index. Economists in a Reuters survey forecast a reading of 59.5 versus 59.4 in January.

U.S. stocks eked out gains on Wednesday despite another rise in oil prices as investors bet the latest data signaled the economy could absorb expected higher energy costs.

The Dow Jones industrial average .DJI was up 8.78 points, or 0.07 percent, at 12,066.80. The Standard & Poor's 500 Index .SPX was up 2.11 points, or 0.16 percent, at 1,308.44. The Nasdaq Composite Index .IXIC was up 10.66 points, or 0.39 percent, at 2,748.07.

(Reporting by Blaise Robinson; Editing by Mike Nesbit)

A JPMorgan Chase & Co fund was in talks to acquire 10 percent of Twitter for $450 million, valuing the company, which has 350 employees, at $4.5 billion, the Financial Times reported on Sunday.

"(The report is) made up," Stone told Reuters in Seoul on the sidelines of a forum organized by broadcaster MBN.

Twitter, which allows users to send short, 140-character text messages, or Tweets, to groups of followers, is one of the Web's most popular social networking services, along with Facebook and LinkedIn.

Social networking services are presenting a growing challenge to established Web players such as Google Inc, Microsoft Corp and Yahoo! Inc, competing for users online and for advertising dollars, raising speculation that Twitter may become the target of a takeover bid.

Google and Facebook have held low-level takeover talks with Twitter that give the Internet sensation a value as high as $10 billion, the Wall Street Journal reported last month.

Stone said Twitter wanted to remain independent and was not in formal bid talks.

The company held talks with Facebook "a couple of years ago ... (but) nothing formal since and it's mostly rumors all the time," he said.

Stone, who reportedly pronounced his given name Christopher as "Bizober" when he was learning to talk and decided to abbreviate it later to Biz, created Twitter with Evan Williams and Jack Dorsey in 2006.

He left Google at around the same time with Williams to start a new podcasting project and later worked to improve the then-popular text message to create Twitter.

It has since become a popular communication tool for celebrities, politicians and businesses, and has played a role in several geopolitical events such as the 2009 post-election demonstrations in Iran.

"We make money. We earn money from a suite of products -- We have promoted tweets ... promoted accounts, all of which are in our advertising mechanism."

"We are just really getting started. We have some internal forecasts (for advertising revenue for 2011) but nothing is really shared right now. We don't need to set the world record or anything like that."

Industry research firm eMarketer said in January that Twitter, which does not disclose financial information, generated an estimated $45 million from advertising in 2010 and was expected to generate about $150 million this year.

(Reporting by Miyoung Kim and Ju-min Park; Editing by Chris Lewis)