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* Futures up: Dow 1.20 pct, S&P 1.25 pct, Nasdaq 1.41 pct (Adds comments, updates prices)
By Shreyashi Sanyal
Jan 4 (Reuters) - U.S. stock index futures were higher on Friday as a better-than-expected jobs report added to the optimism from proposed trade talks between the United States and China next week.
Nonfarm payrolls increased by 312,000 jobs in December, the largest gain since February and beat economists' expectations of 177,000 jobs. There were also healthy increases in wages and the unemployment rate.
Stock futures initially pared some gains after the Labor Department report, which allayed fears over economic growth but bolstered concerns that the Federal Reserve would stick with its plan for two interest rate hikes this year.
But futures soon recovered to levels they were at earlier in on Friday, after China and the United States planned for a fresh round of trade talks on Jan. 7-8 to try and resolve their dispute.
"It's going to be an interesting day to say the least. We'll see if the early strength in the market holds, given (the jobs report) will likely give more reason for the Fed raising, not cutting, rates as some had speculated during the day yesterday," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
"But it's been nothing but volatility in both directions, primarily to the downside over the last month and that's only going to continue as you get cross currents."
At 9:07 a.m. ET, Dow e-minis were up 273 points, or 1.20 percent. S&P 500 e-minis were up 30.5 points, or 1.25 percent and Nasdaq 100 e-minis were up 86.75 points, or 1.41 percent.
The market is projecting there is little room for further hikes, the latest sign of which came on Thursday when 2-year U.S. Treasury yields fell below the Fed's policy rate for the first time in over a decade.
Investors will be looking for clues on monetary policy from Fed Chair Jerome Powell when he speaks later in the day.
"Powell's speech will be interesting because the data supports what he has been saying so far about the economy remaining healthy," said Brad McMillan, chief investment officer at Commonwealth Financial Network in Waltham, Massachusetts.
Fears of a slowdown were heightened on Thursday after data showed U.S. factory activity slowed last month and Apple Inc gave a dire revenue warning that sent Wall Street plunging, with the earnings season around the corner.
Analysts on average expect profits of S&P 500 companies to have increased by 15.5 percent in the fourth quarter, outpacing the 14.8 percent growth in the year-ago quarter, according to Refinitiv IBES data. But the current estimate is lower than the 20 percent growth analysts were expecting in early October. (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta)