US STOCKS-Indexes edge up as deal news offsets jobs data

(Updates to early afternoon, changes byline)

By Ellis Mnyandu

NEW YORK, Feb 1 (Reuters) - U.S. stocks inched higher on Friday in volatile trading as optimism over share valuations after Microsoft Corp's (MSFT.O: Quote, Profile, Research) $44.6 billion bid for Yahoo Inc (YHOO.O: Quote, Profile, Research) offset data showing employers cut payrolls in January for the first time in 4-1/2 years.

In its boldest-ever acquisition move, Microsoft sent a letter to Yahoo's board on Thursday night, offering $31 per share for the Internet media company -- a 62 percent premium over its Nasdaq closing stock price that day. For details, see [ID:nN01391944]

While a weaker-than-expected January payrolls report added to concerns that the economy may be teetering on the edge of a recession, analysts said the bid suggested blue-chip stocks had become cheap.

The proposed takeover "shows that maybe equity prices just got too low and now you're seeing a little bit of courage from people who have been on the sidelines," said Eric Kuby, chief investment officer at NorthStar Investment Management Corp in Chicago.

"It seems to me the real driving news was the unexpected Microsoft's bid for Yahoo. In general, it seemed to spark a little enthusiasm on the back of yesterday's nice rally," he added.

The Dow Jones industrial average .DJI was up 16.18 points, or 0.13 percent, at 12,666.54. The Standard & Poor's 500 Index .SPX was up 5.76 points, or 0.42 percent, at 1,384.31. The Nasdaq Composite Index .IXIC was up 1.16 points, or 0.05 percent, at 2,391.02.

Yahoo shares led advancers on the S&P 500 and on the Nasdaq, with a gain of 45.9 percent to $27.69.