* Nonfarm payrolls forecast rising 196,000 in December
* Unemployment rate seen steady at 7 percent
* Average earnings seen rising, workweek steady
* Report expected to show economy gaining steam
By Lucia Mutikani
WASHINGTON, Jan 10 (Reuters) - U.S. employment likely increased solidly in December in the latest sign of strengthening fundamentals that look set to put the economy on a faster growth path this year.
Nonfarm payrolls probably rose by 196,000 jobs last month, according to a Reuters survey of economists, slightly below November's 203,000 gain, but a touch above the monthly average for the three months through November.
The poll was conducted before reports on Wednesday, which showed private sector employers hired staff at the fastest pace in 13 months in December, while small businesses created the most jobs in nearly eight years. That left some economists anticipating an even stronger payrolls number than forecast.
"Evidence is mounting that the economy is kicking into higher gear," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "It is transitioning from one that was stuck in a rut for several years to one that's poised to grow faster this year."
The Labor Department will release the closely watched employment report at 8:30 a.m. (1330 GMT).
If the forecasts are right, the report will add to a string of data - from consumer spending and trade to industrial production - that has suggested the economy ended 2013 on strong footing and is positioned to gain even more strength this year.
The change in the economy's fortunes, which gave the Federal Reserve confidence last month to start dialing back its massive monetary stimulus, reflects waning fiscal uncertainty after lawmakers in Washington agreed on a two-year budget.
"Consumers were holding back because they were not sure what to expect from the economy. Businesses were doing the same, not hiring or spending money on equipment," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.
"Consumers seem to have opened up their wallets. They are spending more and as a result the economy should look better, and that means more hiring."
JOBLESS RATE SEEN HOLDING AT FIVE-YEAR LOW
Despite the anticipated job gains, the unemployment rate is expected to have held steady at a five-year low of 7 percent after a surprisingly large 0.3 percentage point drop in November.
Annual revisions to the data from the Labor Department's survey of households, which is used to calculate the jobless rate, could mean a rewrite of history, but any changes are expected to be small.
A solid reading on the health of the labor market could encourage the Fed to move forward with plans to further reduce its bond-buying stimulus. The U.S. central bank announced in December that it would trim its monthly purchases to $75 billion from $85 billion, and many economists expect it to decide on a similar-sized cut at its next meeting on Jan. 28-29.
"There is a reasonable expectation they will take most of the year to taper to zero," said Robert Dye, chief economist at Comerica in Dallas.
Growth this year is expected to top 3 percent, a sharp acceleration from the 1.7 percent forecast for 2013.
December's expected job gains are likely to be just as broad-based as they were in November, with government payrolls probably rising by about 1,000. That would mark a second straight monthly increase, largely reflecting hiring by state and local governments.
Cold weather during the survey period could have slowed job gains in manufacturing, construction and leisure industries. But economists said that would probably be offset by brisk retail and transportation sector hiring during the holiday season.
"There will be a lot of temporary factors that will be pulling and tugging at these numbers. What really matters is the underlying health of the jobs market," said Moody's Analytics' Sweet.
"If we get a surprisingly weak number, you just want to let that roll off your back. Other employment indicators point to an improvement in labor market conditions between November and December."
Manufacturing employment is expected to rise for a fifth straight month. The number of construction jobs is seen increasing for a seventh consecutive month.
Employment in the retail sector is expected to have accelerated from November's seven-month low, which economists had blamed on a late Thanksgiving. Payroll gains were also expected in professional and business services.
Despite the job market's show of stamina, average hourly earnings probably rose only 0.2 percent after rising by the same margin in November. The length of the workweek likely held steady at an average of 34.5 hours.
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