(Corrects headline to read US Jan payrolls instead of Dec payrolls)

* WHAT: U.S. January employment report

* WHEN: Friday, Feb. 5 at 8:30 a.m. (1330 GMT)

REUTERS FORECASTS:

The median forecast for nonfarm payrolls is for an increase of 5,000 after an unexpected 85,000 drop in December. Forecasts range from a decrease of 97,000 to an increase of 100,000.

The unemployment rate is seen rising to 10.1 percent from 10 percent in December. Forecasts range from 9.8 percent to 10.2 percent.

The average work week is seen steady at 33.2 hours, with forecasts ranging from 33.2-33.3 hours.

FACTORS TO WATCH

Nonfarm payrolls are expected to have increased in January, only the second time since December 2007, when the worst economic downturn in 70 years started. Payrolls grew by 4,000 in November. Temporary hiring is picking up and labor market indicators during the month have pointed to an improving jobs situation.

January’s report will include the annual benchmark revision to payrolls data back to March 2008. The Department of Labor has estimated that the level of employment for the 12 months to March 2009 will be revised down by about 824,000, meaning the economy shed far more jobs than previously thought. Monthly payrolls from March 2008 to March 2009 will likely be revised.

Analysts blame the over-counting of employment on the so-called birth-death model that the department uses in its monthly report to try to estimate how many companies opened or closed, a process that has worked well in the past.

The weather is a wild card for January payrolls. Given a rise in job losses in weather-sensitive sectors such as construction and leisure in December, analysts believe below-normal temperatures contributed to the surprise 85,000 drop in payrolls that month.

The unusually cold weather continued into the early part of January and analysts are unsure how much of a bounce back in construction employment will be seen in January.

Regardless of the outcome of the revisions and January’s data, the labor market remains on track for growth later in the year, analysts say. A gain in payrolls in January will be a confidence boost for households and may encourage consumers to spend more.

It could give President Barack Obama some breathing space. Discontent over unemployment contributed to political defeat for Obama’s Democrats in an election last month, costing them a crucial Senate seat and foreshadowing potentially big losses for the party in the November congressional elections.

The unemployment rate is expected to edge up to 10.1 percent from 10 percent in December. The jobless rate is viewed as one of the factors that will determine the timing of the Federal Reserve’s first interest rate increase since slashing overnight lending rates to near zero in December 2008.

MARKET REACTION

The payrolls report could spark further downside for stocks if it shows a worsening of the labor market. Key indexes are sitting precariously at support after violating their 50-day moving averages last week as investors worried about bank regulation, fiscal troubles out of Europe and China’s efforts to prevent its economy from overheating.

With the S&P 500 having breached the key 1,085 level, the benchmark index is seen finding some support at the 1,072 level. Failing that, the subsequent support level is pegged at 1,030 -- the low-end of the November-December trading range.

For payrolls graphic, see: link.reuters.com/meq96h (Reporting by Lucia Mutikani, additional reporting by Ellis Mnyandu; Editing by Leslie Adler)