(Corrects previous month's unemployment rate in 2nd paragraph)
* June payroll report comes in above forecasts
* Markets may be volatile with light post-holiday volume
* Investors watching situation in Egypt for oil impact
* Indexes up: Dow 0.5 percent, S&P 0.5 percent, Nasdaq 0.5 percent
By Ryan Vlastelica
NEW YORK, July 5 U.S. stocks rose in early trading on Friday as U.S. June payrolls data came in much stronger than expected, though investors questioned what the report meant for the timing of the Federal Reserve's stimulus program.
About 195,000 jobs were added in the month, above expectations for 165,000. There were also positive revisions to previous months, and the unemployment rate held steady at 7.6 percent. Analysts were looking for it to move to 7.5 percent.
Analysts had been looking to the report for insight into when the Fed might begin to slow its quantitative easing bond-buying stimulus program, which it has said it would do if economic growth and employment data meet its targets.
While stock futures initially jumped more than 1 percent after the report, they subsequently cut about half of those gains. Still, sectors tied to the pace of economic growth advanced. Bank of America Corp added 1 percent to $12.96 while Citigroup Inc was up 1.4 percent to $48.36.
The number "should by rights send Wall Street's bulls rampaging, but the market's addiction to QE may yet hold them back," said Alister Gaines, director of CDC Wealth Management in Edinburgh.
"The odds of the Fed starting to taper QE in September as planned have just shortened - and the markets know it."
Over the past few weeks, markets have sold off on bullish data on the theory that it would mean a quicker end to stimulus. However, recent comments from Fed officials have assuaged concerns that a slowing in the Fed's $85 billion monthly bond buying was imminent.
The Dow Jones industrial average was up 74.95 points, or 0.50 percent, at 15,063.50. The Standard & Poor's 500 Index was up 8.27 points, or 0.51 percent, at 1,623.68. The Nasdaq Composite Index was up 17.31 points, or 0.50 percent, at 3,460.98.
The S&P 500 is down 2.8 percent from its May 21 record closing high of 1,669.16. The benchmark index has been unable to close above its 50-day moving average since June 20, a level which is now at 1,624.68.
Wall Street has been closely tethered to central bank policy, and was also boosted after central banks in Britain and the euro zone signaled that they were holding steady with their stimulus. The comments came on Thursday, when U.S. markets were closed for the Fourth of July holiday.
Trading volume could be light on Friday with many traders still away from the office after the holiday, and the low participation could lead to more volatile markets.
U.S. crude futures rose 0.3 percent, hovering at 14-month highs. While the jobs report could give a clue on demand prospects for oil, investors are also watching unrest in Egypt, which could cause a further price spike on supply concerns. (Editing by James Dalgleish)