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Non-farm payrolls increased by an estimated 175,000 after November's slim 39,000 gain, according to a Reuters survey.

Job growth last May was boosted by temporary hiring for a decennial census. By contrast, the private sector is expected to have driven jobs growth in December -- up 180,000 for its biggest gain since April, according to the Reuters poll.

"The recovery is becoming more sustainable and less dependent on temporary growth factors, particularly inventories," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

"There is more support coming from private demand, particularly consumption. But the labor market improvement is still way slower than what everybody would hope for."

The Labor Department will release the closely watched employment report at 8:30 a.m. and it is expected to add to a run of stronger U.S. economic data.

Speculation about a strong jobs report helped push the U.S. dollar to a five-week high against the euro on Thursday.

"There's a strong consensus that there will be some good numbers coming out of the (United) States tomorrow ... and expectation of a huge payrolls number is fueling all sorts of dollar buying," said C.J. Gavsie, managing director of FX sales at BMO Capital Markets in Toronto.

Nonetheless, the unemployment rate is expected to have only ticked down to 9.7 percent from 9.8 percent in November.

Strong employment numbers for December would be a boost for President Barack Obama. High joblessness cost his Democratic Party control of the U.S. House of Representatives.

Federal Reserve officials will weigh the jobs report when they meet on January 25-26. Signs of strength could increase calls for the U.S. central bank to scale back its widely criticized $600 billion government bond-purchasing program.

Some policymakers indicated in December they had a "fairly high" threshold for curtailing the stimulus program.

FED TO STAY THE COURSE

Fed Chairman Ben Bernanke speaks on the economic outlook before the Senate Budget Committee at 9:30 a.m..

Analysts say the Fed's focus is on unemployment and expect it to complete the bond-buying plan.

* Economists expect U.S. non-farm payrolls, due at 8:30 a.m. ET, to show 175,000 new jobs created in December, the highest level since May, though the unemployment rate is seen edging down only slightly to 9.7 from 9.8 percent.

* Key jobs data report comes after 8 percent rise in the S&P 500 since the start of December.

* U.S. stocks slipped on Thursday, pressured by soft retail sales and a sharp rise in the dollar.

* Ben Bernanke delivers his first congressional testimony since the Federal Reserve launched a controversial bond-buying policy, and may put the brakes on some of Wall Street's optimism surrounding a recent rebound in key economic data.

* U.S. Republicans acknowledged on Thursday they will have to sign off on more deficit spending to avoid a debt default that could roil financial markets and bring the government to a grinding halt.

* In company news, Sara Lee Corp (SLE.N) is considering the spin-off of its meat and coffee businesses after rejecting a takeover bid last month from Brazil's JBS SA (JBSS3.SA), a source familiar with the situation said on Thursday.

* The Chinese securities regulator on Friday approved the local joint ventures of J.P. Morgan Chase & Co (JPM.N) and Morgan Stanley (MS.N), bringing the banks a step closer toward operating securities businesses in China that they, and other banks, have long sought.

* Citigroup (C.N) is seeking buyers for CitiFinancial, the largest consumer finance company in the United States, in a deal that could raise hundreds of millions of dollars, the Financial Times said.

* The Pentagon has overhauled the Lockheed Martin Corp (LMT.N) F-35 fighter project for the second time in a year and said it would buy 41 Boeing Co (BA.N) F/A-18 combat planes over the next three years to offset slower production of the Lockheed plane.

* The United States plans to cut $78 billion in defense spending over five years, including a reduction of up to 47,000 troops, in a politically contentious move that would trim the government's growing budget deficit.

* Three dry wells drilled by Murphy Oil Corp (MUR.N) off the Republic of the Congo will cost it $36 million in the fourth quarter, the U.S. oil company said on Thursday.

* The board of bailed-out insurer American International Group (AIG.N) approved a dividend for shareholders on Thursday that assumes its recapitalization plan will close as soon as next week.

* In Europe, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was down 0.3 percent in early trade, with investors cautious ahead of the widely-watched U.S. payrolls data.

(Reporting by Harpreet Bhal; Editing by Greg Mahlich)

The greenback remained buoyed by an unexpectedly strong ADP employment report earlier in the week which showed a record number of private sector jobs created in December and prompted economists to raise their forecasts for the payrolls data.

"The U.S. jobs number is a mega factor going into 2011 for policymakers as well as markets," said Tom Kaan, a director at Hong Kong-based Louis Capital Markets.

"I'd say the recent dollar strength is more likely due to profit-taking on short positions because people were so bearish but if we see U.S. unemployment dip even slightly, it'll mean that things have actually started getting better," said Kaan.

Non-farm payrolls probably increased by an estimated 175,000 in December and the jobless rate eased to 9.7 percent from 9.8 percent, according to a Reuters survey.

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

Another key event on Friday is Federal Reserve Chairman Ben Bernanke's testimony on the U.S. economic outlook to the Senate Budget Committee, which investors will scrutinize for updates on the Fed's plan to continue buying bonds until June.

The dollar index .DXY, which measures the greenback's performance against a basket of major currencies, on Friday hit a high of 80.95, a level last seen in early December.

A selloff in peripheral euro zone government bonds before a series of bond issues next week, and an EU proposal that could force those who lend to banks to bear big losses should they fail, helped knock the single currency lower across the board.

Portugal, widely seen as the next euro zone state at the risk of needing a bailout after Greece and Ireland, will lead a series of debt auctions from European nations next week.

ASIAN STOCKS EASE, JAPAN OUTPERFORMS

Japan's Nikkei .N225, lifted by a strong day on Chinese bourses, recovered from earlier losses to make a 0.1 percent gain on the day, taking its weekly rise to 3 percent and extending its recent outperformance among Asian markets.

The MSCI Asia ex-Japan .MIAPJ0000PUS fell 0.5 percent and was down 0.2 percent in its first week of trading for the year.

Shares in Samsung Electronics (005930.KS), the world's No.1 memory chip maker, fell 1.3 percent after the company forecast weaker-than-expected fourth quarter earnings. Most analysts see this a blip, with demand for many of the company's businesses, including smartphones, picking up.

Samsung shares are up nearly 25 percent over the past quarter and hovering near record highs.

Facing a newly-empowered Republican Party skeptical of the Fed's latest attempt to stimulate the U.S. economy, Bernanke may put the brakes on some of Wall Street's optimism surrounding a recent rebound in key economic data.

Having been burned before by maintaining a rosy outlook even as the housing crisis deepened, Bernanke is likely to make sure the growth trend is firmly entrenched before sounding too chipper.

Minutes from the Fed's December policy-setting meeting revealed a good deal of caution about recent improvements in the economic data, including a high threshold for curtailing the plan to buy an additional $600 billion in bonds announced in November.

"While the economic outlook was seen as improving, members generally felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program," said the minutes, published earlier this week.

Bernanke will most likely stick to that script before the Senate Budget Committee, even though the numbers have indeed pointed to a pickup in business activity -- and glimmers of hope on the hiring front.

He will have to explain why yields on benchmark Treasury notes have jumped 1 percentage point since the Fed's bond buys were announced, moving in the opposite direction of what was intended.

The chairman may nod to a possible short-term boost to the economy from President Barack Obama's tax cut deal with Republicans. But he might also echo his staffers' assessment that the package does not materially brighten the longer-term horizon.

"It's easy and quite reasonable for him to say it's all very preliminary, and that it will be sometime before the improving trends are firmly entrenched," said Lou Crandall, chief economist at Wrightson Associates in New York.

Indeed, U.S. unemployment remains near 10 percent and economic growth -- running at 2.6 percent on an annualized basis at latest blush -- remains too weak to boost hiring significantly.

RELUCTANTLY FISCAL

Bernanke's testimony, scheduled for 9:30 a.m. EST, will come just an hour after the Labor Department releases its closely-watched monthly employment report.

It is expected to show the economy generated 175,000 new jobs in December, which would mark the best monthly result since May. The jobless rate is expected to dip slightly to 9.7 percent from 9.8 percent.

Against that backdrop, it will hardly be a great surprise if Bernanke proves less than jubilant.

"We probably need to get through two more jobs reports and he will probably use the next semiannual (testimony in February) to lay out the next phase," said Troy Davig, senior economist at Barclays Capital in New York. "It would be surprising if he ventures too far from or signals anything beyond what was laid put in this week's minutes."

The widely-expected decision will enable the two Wall Street banks to underwrite stocks and bonds in one of the fastest growing securities markets in the world.

But the two banks will have to wait another five years before their joint ventures are able to start the more lucrative broking operations.

While foreign banks are attracted to China's rapidly growing economy and capital markets, finding the right partner for a joint venture and regulatory restrictions have delayed and sometimes derailed their attempts to enter Chinese markets.

"This was a gap we had in our franchise which we have filled now," said Zili Shao, chairman and CEO of J.P. Morgan's China's operations. "But we have a lot of work to do to make best use of this platform." he added.

The long awaited approvals come just ahead of Chinese President Hu Jintao's visit to the United States from January 18.

Sun Zhe, a professor at Tsinghua University in Beijing who studies China-U.S. relations, said that China has been making concessions in a show of goodwill before Hu's visit.

The approval allows J.P. Morgan to make its maiden entry into the Chinese securities market, while Morgan Stanley will make a come back after exiting a joint venture with China International Capital Corp (CICC) last year.

J.P. Morgan will link up with First Capital Securities Co, a Shenzhen-based brokerage, and hold 33 percent of the venture.

Morgan Stanley meanwhile, is able to move ahead with its new Chinese partner, Huaxin Securities Co Ltd, also known as China Fortune Securities Co Ltd.

Morgan Stanley was an early entrant into China when it formed a JV with CICC in 1995, but recently sold its stake to a group of investors including KKR, TPG and Singapore's GIC.

BOOMING CHINA MARKET

Morgan Stanley will hold a one-third stake in the new joint venture, which will be called Morgan Stanley Huaxin Securities Co Ltd and registered and principally located in Shanghai.

Chinese IPO markets have taken off in the past two years, with total proceeds from last year's offering rising to $69.5 billion, compared with just $9.5 billion in 2008, according to Thomson Reuters data.

China has dominated global IPOs, accounting for about 27 percent of global volumes last year. Similarly, the bond market in China has more than doubled since 2008 to $172 billion in 2010.