(Updates column sent Friday with more on Dow and jobs data )

By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. stocks could start thisweek with investors feeling a bit more optimistic about theeconomy, due to a stronger-than-expected jobs report, makingfurther market gains more likely.

Friday's nonfarm payrolls report was the latest of theweek's data to suggest the economy may not be headed foranother severe downturn, as many investors have feared.

All three major U.S. stock indexes rallied more than 1percent on Friday, with the Dow Jones industrial averagenudging back into the black for the year.

The Standard & Poor's 500 Index scored a gain of 3.8percent for the week, marking its best week in eight, andstarting September -- typically the weakest month for themarket -- on a strong note. In contrast, for the month ofAugust, the S&P 500 fell 4.7 percent.

"The data forces a re-evaluation of the underlying thesisof the economy, and how the stock market is priced," saidCharles Lieberman, chief investment officer of Advisors CapitalManagement, LLC in Hasbrouck Heights, New Jersey.

"The employment report is really the keystone. If theeconomy is producing jobs, the thesis of a decline in theeconomy goes out the window," he said.

The economic calendar will be light this week, especiallysince it will be cut short by a long holiday weekend with theU.S. stock market closed for Labor Day on Monday. But theagenda will include the international trade deficit data, whichinvestors will scrutinize for clues on spending. The latestweekly jobless claims numbers are due as well.

High unemployment and weak consumer spending have beenamong the toughest hurdles to sustaining the economy's recoveryfrom the worst downturn since the 1930s.

Though the stock market ended this week with gains, the S&P500 was unable to break out of a trading range of between 1,040and 1,130, and some analysts see that range-bound trendcontinuing.

"I think we're in rally mode. In no way do I see us goingthrough new highs or breaking through the trading range, but Isee strength after the holiday," said Alan Lancz, president ofAlan B. Lancz & Associates Inc. in Toledo, Ohio.

"We still see this as a two-steps-forward, one-step-backtype market ... but we'll take what we can get."

SEPTEMBER'S SOBER HISTORY

For the week, the Dow Jones industrial average rose2.9 percent, while the S&P 500 advanced 3.8 percent and theNasdaq gained 3.7 percent.

That's a promising start, but history shows that this monthis not one that Wall Street's denizens will "Try to Remember,"a la the iconic song from "The Fantastiks" of Off-Broadwayfame.

September is typically the weakest month for stock marketperformance, according to the Stock Trader's Almanac. The S&P500 has declined 0.7 percent on average during September in theyears since 1950, the Almanac says.

However, on the day after Labor Day, the Dow has risen in12 of the last 15 times, the Almanac notes.

The Dow industrials ended Friday's session at 10,447.93, up0.2 percent for the year. The S&P 500 and the Nasdaq wrapped upthe week close to break-even for 2010; the S&P is off about 1percent for the year and the Nasdaq is off 1.6 percent.

Friday's jobs report was the catalyst for a bullish end tothe week for stocks because it showed that although overallpayrolls shed jobs for the month of August, the decline was farless than expected. And providing a bright spot, privatepayrolls rose more than expected.

The silver lining in the cloud hanging over the U.S. labormarket was the government's data showing 67,000 private-sectorjobs were added in August, which exceeded economists'expectations. And overall, U.S. nonfarm payrolls lost 54,000jobs in August -- much less than the forecast for a drop of100,000 jobs.

Analysts said the news gave a ray of hope for the recovery.Other data this week showed an unexpected rise in the Institutefor Supply Management index on U.S. manufacturing,stronger-than-expected pending homes sales in July, and asecond consecutive week of lower claims for initial joblessbenefits.

The data means "we are probably not looking at a doubledip," said Marc Pado, U.S. market strategist at CantorFitzgerald & Co. in San Francisco.

This week's data includes reports on international trade onThursday and wholesale inventories on Friday.

A surge in imports dampened growth in the second quarter.

U.S. government data during the week is expected to showthe international trade deficit narrowed somewhat to $47.2billion in July, according to economists polled by Reuters,after rising to $49.9 billion in June, the highest sinceOctober 2008.

Analysts believe sluggish domestic demand should cause amoderation in the growth of imports in coming months, whilethey expect U.S. exports to strengthen. As a result, the tradegap should be less of a drag on the economy.

Initial jobless claims, also expected Thursday, are seendipping to a seasonally adjusted 470,000 for the week from472,000 previously.

Wholesale inventories for July, due on Friday, are forecastto rise 0.4 percent, the Reuters poll showed, following June'sgain of just 0.1 percent. That report also will shed light onwholesale sales, seen up 0.3 percent in July, following June'sdecline of 0.7 percent.

(Wall St Week Ahead runs every Sunday. Any questions orcomments on this column can be e-mailed to:caroline.valetkevitch(at)reuters.com) (Reporting by Caroline Valetkevitch; Additional reporting byLucia Mutikani and Chuck Mikolajczak; Editing by Jan Paschal)