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Futures up: Dow 0.20%, S&P 500 0.27%, Nasdaq 0.40%

Jan 3 (Reuters) - U.S. stock index futures edged higher

on Friday, as investors awaited more data for insights on the

health of the economy and braced for likely policy changes under

the incoming Trump administration.

At 05:40 a.m. ET, Dow E-minis were up 85 points, or

0.20%, S&P 500 E-minis were up 16.25 points, or 0.27%,

and Nasdaq 100 E-minis were up 85.25 points, or 0.40%.

Wall Street had a dour start to the new year, with all three

major indexes erasing early gains to close lower for a fourth

straight session on Thursday, bucking a historical trend where

markets rally in the last five sessions of December and the

first two sessions of January.

The benchmark S&P 500 and blue-chip Dow are on

track for weekly declines of over 1% each, while the tech-heavy

Nasdaq has logged a drop of about 2%. Technology stocks

that have led much of the rally over the past two

years took the heaviest beating.

Analysts have pointed to uncertainty around the policies

incoming U.S. President Donald Trump's administration could

implement, given that his Republican party also dominates

Congress. The newly-elected Congress is set to commence its

first session on Friday and Trump will be sworn in on Jan. 20.

Trump's proposals to lower corporate taxes, ease

regulations, impose tariffs and clamp down on illegal

immigration could boost corporate profitability and the economy,

but they also threaten to spur inflation and impede the pace of

monetary easing.

The yield on the 10-year Treasury note is pinned

near the psychological level of 4.5% and according to the CME

Group's FedWatch Tool, traders see the Federal Reserve lowering

interest rates by about 50 basis points this year as data

continues to signal resilience in the economy.

Later in the day, markets will parse ISM's report on

manufacturing activity for December, ahead of a key employment

figure due next week.

The first among policymakers to comment on the economic

outlook this year, Richmond Fed President Thomas Barkin's

remarks are also on tap.

Stretched equity valuations have been a concern for

investors but most brokerages expect another year of gains for

U.S. stocks, propelled by strong corporate performance.

Quarterly earnings reports due later in the month will test Wall

Street's more than two-year bull run.

Tesla added 1.1% in premarket trading, after

sliding over 6% in the previous session on a disappointing

annual quarterly deliveries report.

U.S. Steel slid 8.2% after sources said President Joe

Biden had decided to officially block Nippon Steel's ( NISTF )

proposed $14.9 billion purchase of the company, dealing a

probably fatal blow to the contentious merger plan.

Block rose 2.8% after brokerage Raymond James raised

its rating to "outperform" from "market perform".

U.S. automobile sales for December, expected later in the

day, are also in focus.

Trading volumes are expected to be subdued following the New

Year's holiday on Wednesday.

(Reporting by Johann M Cherian and Pranav Kashyap in Bengaluru;

Editing by Devika Syamnath)