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Late in the day, stocks gainedafter reports that Federal Reserve Chairman Ben Bernanke said in a CBS television interview recorded on November 30 that he does not rule out more than the announced $600 billion in Fed asset purchases. The interview with "60 Minutes" has yet to be televised.

The S&P 500 rose 3 percent this week, as investors were reassured by signs the economy is stabilizing and have taken a more optimistic view of Europe's debt crisis. This has helped push the S&P 500 close to a new two-year high. The Nasdaq rose to nearly a three-year high.

"We're within 5 to 6 points on the S&P of brand-new recovery cycle highs," said Jim Paulsen, chief investment officer at Wells Capital Management, in Minneapolis. "If it does break through, there is a lot of room to the upside."

Despite a modest day for major averages, the PHLX Semiconductor Index .SOX and the Dow Jones Transportation Average.DJT touched 52-week highs, a positive sign as both are viewed as market bellwethers.

Paulsen said the jobs number was such an outlier that it did not shake investors' new-found confidence in the economic recovery.

"The economic momentum is not doused by what we got this morning," he said. But he added, "If data reports start going weak in the next few weeks, then this jobs number is going to get a lot more attention."

Volume was at its lowest level this week, according to early data, and was well below its daily average so far this year.

But the market's breadth was overwhelmingly positive on both the New York Stock Exchange and the Nasdaq, where about eight stocks rose for every five that fell.

The Dow Jones industrial average .DJI rose 19.68 points, or 0.17 percent, to end at 11,382.09. The Standard & Poor's 500 Index .SPX added 3.18 points, or 0.26 percent, to 1,224.71. The Nasdaq Composite Index .IXIC gained 12.11 points, or 0.47 percent, to close at 2,591.46.

On Friday, the Nasdaq finished at its highest level since early January 2008.

ALCOA AND BANKS RISE, VIX FALLS

Commodity-related shares benefited from a weaker dollar, which declined after the jobs report. Aluminum company Alcoa Inc (AA.N) gained 1 percent to $14.22.

Financials, which had their biggest day in three months on Thursday, extended gains late in Friday's session. The KBW bank index .BKX rose 0.8 percent.

Employment barely grew in November. Nonfarm payrolls rose by only 39,000, much weaker than the 140,000 new jobs that economists forecast. The U.S. unemployment rate unexpectedly jumped to a seven-month high of 9.8 percent, the Labor Department said.

The plan found more backing than many anticipated, from Democrats and Republicans, and parts of it could be used in President Barack Obama's next budget, due in February, as well as in congressional proposals to follow.

A formal commission vote did not occur, but 11 members said they supported the plan and seven said they did not. It needed 14 votes to be sent to Congress for legislative action.

As Europe wrestles with a government debt crisis, the commission's work appeared to have galvanized lawmakers around the need to take firm action soon on reducing the $1.3-trillion deficit and the $13.8-trillion national debt.

"We've crossed an important hurdle here and laid out a plan that will be resurrected because it must be," said Democrat Kent Conrad, chairman of the Senate Budget Committee, at the commission's last meeting where backed the plan.

"Other than the terrorist threat ... this debt threat constitutes the greatest threat to America," Conrad said.

(Reporting by Kevin Drawbaugh, Donna Smith and Andy Sullivan; Editing by Jackie Frank)

Investors awaited non-farm payrolls figures, due at 1330 GMT. Economists polled by Reuters estimated that U.S. employers added 140,000 jobs in November after adding 151,000 jobs in October. The unemployment rate is expected to remain unchanged from October at 9.6 percent.

The U.S. ISM non-manufacturing index will be released at 1500 GMT.

Trading activity around a number of healthcare deals is being examined by the U.S. authorities as part of investigations into suspected insider trading by certain hedge fund players, the Wall Street Journal said, citing people familiar with the matter.

The authorities are scanning deals such as MedImmune Inc's takeover by AstraZeneca PLC (AZN.L) in 2007, Merck's (MRK.N) purchase of Schering-Plough and Wyeth's takeover by Pfizer Inc (PFE.N), both in 2009, the WSJ said.

U.S.-based Walter Energy Inc (WLT.N) has agreed to buy Canada's Western Coal (WTN.TO) (WTN.L) for C$3.3 billion ($3.25 billion) to create the world's leading metallurgical coal producer.

China will switch to a prudent monetary policy from a moderately loose stance, the Communist Party's top leaders decided on Friday, a change that could pave the way for more interest rate increases and lending controls.

The FTSEurofirst 300 .FTEU3 index of top European shares is up 0.1 percent, after rising 3.7 percent over the previous two sessions.

Japan's Nikkei share average .N225 held onto recent gains on Friday as U.S. retail and housing data raised hopes for a swifter recovery in the world's biggest economy while concerns about Europe's debt crisis eased.

Wall Street rallied for a second day on Thursday as concerns about Europe's sovereign debt crisis waned, prompting investors to reverse bearish bets on the market.

The Dow Jones industrial average .DJI gained 106.63 points, or 0.95 percent, to 11,362.41. The Standard & Poor's 500 Index .SPX rose 15.46 points, or 1.28 percent, to 1,221.53. The Nasdaq Composite Index .IXIC added 29.92 points, or 1.17 percent, to 2,579.35.

(Reporting by Atul Prakash; Editing by Jon Loades-Carter)

The deal shows how surging global steel production, driven mainly by China, is stimulating M&A activity in the mining sector, with coal producers scrambling to take advantage of booming Asian demand.

Walter Energy will pay C$11.50 a share, a 56 percent premium to Western Coal's closing price on November 17, the day before Walter Energy announced its proposal.

"This is a transformative transaction at a time when global demand for metallurgical coal is surging," said Joe Leonard, interim Chief Executive of Walter Energy.

The enlarged company will have total coal reserves of about 385 million tons and expects to produce more than 20 million tons of coal by 2012.

Under the deal, Western Coal shareholders will get about C$2.1 billion in cash and own about 14 percent of the enlarged company.

The transaction is expected to boost Walter Energy's earnings per share in the first full year after completion which is expected by the second quarter of 2011.

Walter Energy had said on November 18 that it was in talks to buy its Canadian peer and on Thursday extended the 14-day period for exclusive talks.

Steelmaking, or metallurgical, coal is a key ingredient used in about 70 percent of worldwide steel production and with steel demand forecast to hit a record 1.34 billion tons in 2011.

"Our combined production capacity and geographic footprint leaves us extremely well positioned to benefit from favorable sector dynamics driven by increased steel production in markets such as China, India and Brazil," said Leonard.

Shares in London-listed Western Coal were up 7.2 percent at 0933 GMT, outperforming a 0.1 percent climb in a British mining index .FTNMX1770

(Editing by Matt Scuffham and Jane Merriman)

($1=1.014 CANADIAN DOLLAR)