* AIG jumps 11 percent after 1st profit in seven qtrs
* Stocks up; S&P, Dow by 0.8 pct, Nasdaq 0.7 pct (Updates to mid-morning)
By Angela Moon
NEW YORK, Aug 7 (Reuters) - U.S. stocks advanced on Friday after the government reported fewer workers lost jobs in July than expected, fueling hopes of an economic recovery and providing solid footing for a recent market run-up.
All three major indexes rose more than 1 percent after closing lower Thursday, when investors trimmed long positions in risky assets, including stocks, before the payrolls report.
Among top advancers, embattled insurer American International Group Inc jumped 11 percent to $25 after reporting its first profit in seven quarters.
Investors are keen for any signs of a recovering AIG, which was rescued by U.S. taxpayers during the financial crisis. At Thursday's close, the stock was up nearly 70 percent since the beginning of the week.
The Labor Department said U.S. employers cut 247,000 non-farm jobs in July, far less than the 320,000 expected and the smallest decline in a year, suggesting the recession was abating.
The July unemployment rate eased to 9.4 percent from 9.5 percent in the prior month, the first time the rate had fallen since April 2008.
"The data was a beat on many different numbers, including manufacturing and average work week. It shows that not only are people losing less jobs, but the trend of cutting back working hours has changed," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co, in San Francisco.
"It gives you confidence that if you have a job, you will be able to keep it and you will be able to work more hours, giving a better outlook of the rest of the year."
The Dow Jones industrial average was up 75.50 points, or 0.82 percent, at 9,331.76. The Standard & Poor's 500 Index was up 7.94 points, or 0.80 percent, at 1,005.02. The Nasdaq Composite Index was up 14.31 points, or 0.73 percent, at 1,987.47.
Among Nasdaq advancers, graphics chipmaker Nvidia Corp rose 5.6 percent to $13.86 a day after after reporting a smaller quarterly loss and setting a third-quarter sales outlook above expectations.
CIT Group Inc jumped 3 percent to $1.67 after the troubled lender reported progress on its restructuring plans. It suspended payment of preferred dividends and said it had completed a drawdown of its $3 billion secured credit facility.
The broad S&P 500 is now up 48.4 percent from its 12-year closing low in early March, driven by a string of economic numbers suggesting a recovery and an earnings season with most S&P 500 companies beating expectations.