Optimism over corporate profits and an improving labor market could propel U.S. stocks higher next week as earnings season approaches.

Analysts expect trading at the outset of the week to be dictated by Friday's non-farm payrolls report, which showed the economy added 162,000 jobs last month, the fastest pace of growth in three years. U.S. markets were closed for the Good Friday holiday.

Things have been getting better, there's no question about it. We've had a remarkable v-shaped recovery since last March, said Alan Valdes, director of floor operations for Kabrik Trading in New York.

The broad S&P 500 <.SPX> closed out its fourth consecutive quarterly gain this week and saw its best monthly rise since last July. The market could have momentum on its side as investors turn their attention to what is expected to be a strong earnings season.

The Dow <.DJI>, meanwhile, has its sights set on the psychologically important 11,000 level, which could be taken out Monday if there is enough enthusiasm over the jobs report.

The payrolls data will lend support to markets, as U.S. stock futures rallied in the wake of the release. Private hiring was stronger than anticipated, bolstering the view the economy is starting to find its footing and therefore needs less government support.

However, with stocks having gained more than 70 percent since the March 2009 low, some worry the rally will be interrupted if the economy does not maintain its strength.

The road to a self-sustaining economic recovery, which is the thesis of the bullish cabal, is going to be tested, said Doug Kass, president of Seabreeze Partners Management in Palm Beach, Florida.

As well as the payrolls report, investors will take in minutes from the Fed's rate-setting meeting in March, and a round of data that includes February pending home sales and a survey on the services sector for March.

GETTING SEA LEGS

Analysts expect first-quarter earnings for S&P 500 companies to rise 36.3 percent, according to Thomson Reuters data. That's slightly lower than the 37.2 percent growth that was expected in January and well off the 51.2 percent that was anticipated in October.

While expectations have come down somewhat, analysts' estimates could be closer to the mark than in recent quarters, said Scott Wren, senior equity strategist at Wells Fargo Advisors in St. Louis.

Coming into 2009, estimates were off by $20 or $30. I think people have a better, more realistic feel for what earnings are going to be now, said Wren.

Investors will be keen for corporate guidance heading into the earnings season, which unofficially kicks off with Alcoa Inc on April 12. So far, 70 S&P companies have given negative preannouncements compared to 55 companies that have given positive ones.

Honeywell was an exception to the negative bias this week when the diversified manufacturer raised its profit outlook, citing stronger orders and sales in several markets.

While some of the earnings enthusiasm could already be priced in, preventing a swift, large rally, good results should give the market enough support to drift higher, said Matt Kaufler, portfolio manager and equity analyst at Clover Capital Management in Rochester, New York.

In terms of providing another check that this recovery is gathering its sea legs, I think the earnings season is going to provide that confirmation point, said Kaufler.

EXIT SIGNS

The Federal Reserve will release its minutes for its most recent rate-setting Tuesday. Fed Chairman Ben Bernanke will speak at the Dallas Regional Chamber of Commerce on Wednesday. Investors will be watching for any additional details on the Fed's plans to unwind its stimulus measures.

In a relatively light week for data, one of the more influential reports will come on Monday with the Institute for Supply Management's non-manufacturing index for March. Expectations are for the index to rise to 53.5 compared to 53 the previous month, according to Reuters data.

February pending home sales, also due on Monday, are expected to dip 0.2 percent, improving from January's 7.6 percent decline.

Friday's wholesale inventories report for February is expected to show a gain of 0.3 percent from a loss of 0.2 percent the month before. For details, see

(Editing by Andrew Hay)

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