US STOCKS-Market edges up on bid for Yahoo

(Updates to early morning)

By Caroline Valetkevitch

NEW YORK, Feb 1 (Reuters) - U.S. stocks edged higher on Friday as optimism about Microsoft Corp's (MSFT.O: Quote, Profile, Research) $44.6 billion offer to buy Internet media company Yahoo Inc (YHOO.O: Quote, Profile, Research) outweighed weaker-than-expected jobs data.

Shares of Yahoo, up 50 percent at $28.60, led gains on the S&P and Nasdaq, while shares of Microsoft, which fell 4.9 percent at $31.05 and hit a three-month low, led declines on all three major indexes.

The government reported a drop in non-farm payroll jobs in January -- the first decline in 4 1/2 years. The national unemployment rate eased to 4.9 percent from 5 percent in December.

The report followed news of Microsoft's proposal, which seemed to rekindle faith that share prices could appreciate even as the threat of recession loomed.

The Dow Jones industrial average .DJI was up 66.98 points, or 0.53 percent, at 12,717.34. The Standard & Poor's 500 Index .SPX was up 8.50 points, or 0.62 percent, at 1,387.05. The Nasdaq Composite Index .IXIC was up 14.53 points, or 0.61 percent, at 2,404.39.

Shares of retailers like Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research), which are sensitive to changes in economic cycles, dipped 0.8 percent to $50.47.

In the financial sector, MBIA Inc (MBI.N: Quote, Profile, Research) was up 9 percent at $16.92 after a report on CNBC television that eight banks were forming a consortium to seek a rescue plan for bond insurers.

Software maker Microsoft said it offered to buy Yahoo for $31 per share, a 62 percent premium over Yahoo's closing stock price on Nasdaq Thursday. (Editing by Kenneth Barry)