U.S. non-farm payrolls data on Friday will likely show the pace of lay-offs eased in April, potentially adding fuel to a two-month stock market rally even though the jobless rate looks set to hit a 25-year high.

A Reuters survey earlier this week forecast employers cut 620,000 jobs last month after slashing 663,000 in March. Economists expect the April unemployment rate to surge to 8.9 percent from 8.5 percent a month earlier.

But job losses last month could be even lower than forecast after another independent survey, by ADP Employer Services, released on Wednesday showed private sector employers eliminated 491,000 positions in April, the smallest amount since last November, after cutting 708,000 jobs in March.

Slower job losses would add to signs that the intensity of the U.S. recession, now in its 17 month, is ebbing. The market will also watch for revisions to March and February figures.

An easing in weekly unemployment data and new benefit claims suggest job losses likely lessened a bit last month.

The most optimistic forecast in the Reuters poll of 70 economists is for non-farm payrolls to drop by 530,000 jobs and the unemployment rate to climb to rise by just two-tenths of a percentage point to 8.7 percent.

That kind of scenario would provide one more strong green shoot to the bullish case on the economy, said David Dietze, chief investment strategist at Point View Financial Services in Summit, New Jersey.

The stock market has rallied on the assumption that the worst of the economic crisis is over, with leading stock indexes up 35 percent since early March.

If both the headline non-farm payrolls number and the unemployment rate are within market expectations, the stocks rally could get fresh life, with cyclical stocks such as equipment manufacturers and industrials the most likely to rise.

The dollar could fall a bit as investors shift into currencies seen as riskier, such as the euro, the British pound and the Australian dollar.

Risk appetite has come back with a vengeance. If the number is in line with expectations, it will be mildly dollar negative in the sense that risk appetite will continue to lift the high-yielding currencies, said Boris Schlossberg, director of FX Research at GFT Forex in New York.

Conversely, a figure that is much worse than the consensus estimate could provide the spark for a sell-off in stocks and stronger demands for U.S. debt, pushing up the dollar.

The most pessimistic forecast in the Reuters survey is for payrolls to contract by 810,000.

Building, construction, retail and bank shares would fare worst in that kind of scenario, analysts said.

There will be concern on the part of Wall Street that maybe we can't be sure that the recession is ending as quickly as the bullish case scenario, said Dietze.

(Reporting by Lucia Mutikani; Editing by Dan Grebler)