* December payrolls much lower than expected, weather blamed
* Housing stocks rise as jobs report lowers 10-year yield
* Alcoa slides after results, Sears down on holiday sales
* Indexes down: Dow 0.3 pct, S&P 0.2 pct, Nasdaq 0.2 pct
NEW YORK, Jan 10 (Reuters) - U.S. stocks edged lower on Friday after the December payroll report came in much weaker than expected, raising new questions about both the strength of the economy and the aggressiveness of Federal Reserve stimulus.
Only 74,000 workers were hired last month, the smallest increase since January 2011 and significantly under the 196,000 that had been expected by analysts.
While the jobs report bucked the positive trend of recent employment data - including the ADP report and jobless claims - the setback was expected to be temporary amid signs the number of hires may have been affected by cold weather.
Investors continue to assess economic data through the eyes of the Fed as they try to gauge how quickly it will reduce its market-friendly bond purchases. December was the first payroll report since the U.S. central bank announced a slowing of the program.
"Since economic momentum had seemed to be picking up, there were real concerns that tapering would become more aggressive throughout the year, fears that this report have washed away," said Alec Young, global equity strategist at S&P Capital IQ in New York.
"People are hoping this is an anomaly, and it seems like it was related to the weather, but if it is a trend then that is a real threat to GDP and corporate earnings growth."
Eight of the 10 S&P 500 sectors were lower, with only utilities and telecoms rising on the day. Both groups are considered defensive plays. Financial and energy shares were the weakest on the day. Both are closely tied to the pace of economic growth.
The Dow Jones industrial average was down 52.47 points, or 0.32 percent, at 16,392.29. The Standard & Poor's 500 Index was down 4.32 points, or 0.24 percent, at 1,833.81. The Nasdaq Composite Index was down 9.74 points, or 0.23 percent, at 4,146.45.
For the week, the S&P is up 0.1 percent while the Nasdaq is up 0.3 percent. The Dow is down 0.5 percent.
The payroll report sent yields on the benchmark 10-year U.S. Treasury note lower, which boosted housing stocks. Lennar Corp rose 3.4 percent to $39.75 while D.R. Horton Inc rose 3.5 percent to $22.51. The PHLX housing index rose 1.6 percent.
Shares of Alcoa Inc fell 5 percent to $10.16 a day after the company reported a massive quarterly loss, hurt by recent declines in aluminum prices.
Sears Holdings Corp fell 14 percent to $36.74 a day after the retailer reported steep declines in comparable-store sales at its Kmart and U.S. namesake chain in the crucial holiday season.
Shares of trucking company YRC Worldwide fell 19 percent to $12.70, a day after sliding 16 percent, as workers represented by the Teamsters union rejected a contract extension the company proposed, jeopardizing a plan to restructure its debt.
Target Corp said a massive payment card data breach that occurred during the first three weeks of the holiday shopping season affected up to 70 million people, more than double its previous estimate. Its shares fell 1.2 percent to $62.56.