* Dow hits fresh highs, S&P 2 pct away from record intraday high
* U.S. non-farm payrolls jump in February, unemployment at lowest since Dec '08
* Dow up 0.2 pct, S&P up 0.1 pct, Nasdaq up 0.1 pct
By Angela Moon
NEW YORK, March 8 (Reuters) - U.S. stocks edged higher on Friday on a much stronger-than-expected payrolls report, but gains were capped as investors sold some bank shares to book profits in the wake of the Federal Reserve's "stress tests" results.
The Dow Jones industrial average hit yet another record high and the S&P 500 has advanced to a level about 2 percent away from an all-time intraday high, as investors have seized the opportunity to buy on dips.
Hiring in the United States jumped in February with non-farm payrolls adding 236,000 last month, easily beating expectations for a gain of 160,000 jobs. The unemployment rate fell to 7.7 percent, the lowest since December 2008.
"We have already coined this year's expected trend as being 'the year of payroll growth' and so far, we feel that the data is living up to such expectations," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
But gains were limited by a retreat in financial stocks, which had risen in advance of the release of the Federal Reserve's stress test results. After the Fed said on Thursday, as expected, that the biggest U.S. banks have enough capital to withstand a severe economic downturn, investors sold some bank shares to lock in some of the recent gains, analysts said.
The S&P financial sector index, which had climbed more than 3 percent for the month, was flat at midday. The index was down just 0.02 percent at midday after falling about 0.3 percent earlier in Friday's session.
JPMorgan Chase, down 1.3 percent at $49.95, was the biggest drag on both the Dow and the S&P 500.
"The banks have been leading for a while. The banks, as a group, are up sharply. Yesterday they were up big in anticipation of those stress tests last night," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.
"The move already came, that is what people were expecting, so now these investors are deciding to take some profits."
Still, investors were mindful of the possibility of a bigger pullback after the steady gains this year. The last correction for the benchmark S&P 500 index was nearly a year ago - a 9.9 percent slide from April highs to the start of June.
The Dow Jones industrial average was up 24.11 points, or 0.17 percent, at 14,352.60. The Standard & Poor's 500 Index was up 1.81 points, or 0.12 percent, at 1,546.07. The Nasdaq Composite Index was up 3.04 points, or 0.09 percent, at 3,235.13.
Adding to the stream of positive economic data, wholesale inventories increased 1.2 percent to $504.4 billion in January - the fastest pace of growth since December 2011. The strong January reading followed a revised 0.1 percent rise in December 2012.
McDonald's Corp gained 1.5 percent to $98.57 and gave the biggest boost to the Dow after the fast-food hamburger chain said February sales at established restaurants fell just 1.5 percent, a little better than expected.
Pandora Media shares jumped 18.2 percent to $13.86 on stronger-than-expected quarterly results. The company, the leader in Internet-streaming radio, also made the surprising announcement that CEO Joseph Kennedy is stepping down.
Skullcandy Inc shares plunged nearly 22 percent to $5.27 after the headphone maker said it expects to post a loss in the current quarter, even though fourth-quarter revenue was higher than expected.
The benchmark S&P 500 index has advanced 1.8 percent for the week, its biggest weekly gain since the first week of the year, on data showing an improving labor market picture and expectations that the Federal Reserve will not end its economic stimulus program any time soon.