By Saqib Iqbal Ahmed and Laura Matthews

NEW YORK, March 7 (Reuters) - A solid U.S. jobs report assuaged some swirling concerns about a rapid growth slowdown, but with policy uncertainty surging and tariff headlines keeping the outlook for risk assets murky, Wall Street sees little to cheer.

U.S. job growth in February was just shy of estimates and the unemployment rate edged up to 4.1%, but investors were bracing for a more dour outcome after a recent spate of worrisome data.

After a punishing selloff in stocks this week, however, markets remained consumed by uncertainty over trade policy and deep federal government spending cuts that could erode the labor market's resilience in the months ahead.

"We've got a relatively expensive market. Mix that with uncertainty and concern and the path of least resistance is downward," said Jack Ablin, chief investment officer at Cresset Capital in Chicago.

"This is just a risk-off mentality and it's going to take a lot of data to convince people otherwise," Ablin said.

Nonfarm payrolls increased by 151,000 jobs last month after rising by a downwardly revised 125,000 in January, the Labor Department said on Friday. Economists polled by Reuters had forecast payrolls advancing by 160,000 jobs.

The employment report followed data that showed U.S. economic growth slowed in the fourth quarter while U.S. retail sales dropped by the most in nearly two years in January.

"It's not quite the softening in economic growth that a lot of investors were expecting based on some of the recent data," Gennadiy Goldberg, head of US rates strategy at TD Securities in New York, said.

Investors have been grappling with dramatic policy changes around the world, including President Donald Trump's back-and-forth on implementation of fresh tariffs on Mexico, Canada and China.

Risks to the Mexican, Canadian and American economies are piling up amid a chaotic implementation of U.S. tariffs that has created deep uncertainties for businesses and decision-makers, according to Reuters polls of economists taken this week.

"You're not going to hire, you're not going to make capital expenditure plans until you see which way these things fall out," said Chris Grisanti, chief market strategist at MAI Capital Management. "I suspect we'll start to see that come through in future monthly numbers."

Friday's data did little to turn the tide of bearish sentiment that has gripped Wall Street. Wall Street stocks have sold off sharply this week with the Nasdaq Composite .IXIC on Thursday confirming it has been in a correction since December, and the S&P 500 on pace for its biggest weekly percentage drop in six months.

Stocks swung wildly on Friday, with the S&P 500 little changed in afternoon trade. Major indexes cut losses following mid-day comments from Federal Reserve Chair Jerome Powell, who told an economic forum that the economy "continues to be in a good place."

The U.S. central bank will be in no rush to cut interest rates while it waits for more clarity on how Trump administration policies affect the economy, Powell said.

"Powell is giving sense of calm to a market that's been moving very erratically," said Lindsey Bell, chief market strategist at Clearnomics.

For some investors, recent signs of weakening growth and the prospect of further market turmoil due to tariffs have been a sign to take some risk off the table and Friday's data did little to shake that conviction.

Carson Group remains overweight equities but now favors more defensive names rather than more volatile, riskier stocks, said Sonu Varghese, the firm's global macro strategist.

With international equities faring better than U.S. markets, investors have also been looking outside the U.S.

"I've been advocating taking profits on U.S. large cap tech positions, which have been big winners, and reallocating into some of the lagging areas of the market like international, and here at home mid-caps and small," Talley Leger, chief market strategist at The Wealth Consulting Group, said.

Investors have also been lapping up protection in the options market with demand for defensive options contracts soaring. The Cboe Volatility Index .VIX, an options-based measure of demand for protection against a stock market pullback, rose to near 3-week high of 26.56 on Friday.

"Investors are getting very worried about the downside risks to their portfolios," Torsten Slok, chief economist at Apollo Global Management, said in a note.

Wall Street's focus will also turn to how long the Fed remains on hold with interest rate cuts.

The Fed held its benchmark interest rate in the 4.25%-4.50% range at a policy meeting last month and is expected to do so again at its March 18-19 gathering. Traders of short-term interest rate futures after the report held bets that the Fed would issue about three cuts in 2025, according to LSEG data.

With the jobs data, "while the worst fears were not met, the report does confirm that the labor market is cooling and that it may require some assistance from the Fed in the coming months," Seema Shah, chief global strategist at Principal Asset Management, said in emailed comments.

(Reporting by Saqib Iqbal Ahmed and Laura Matthews, additional reporting by Karen Brettell, Sinead Carew and Davide Barbuscia; editing by Lewis Krauskopf and Chizu Nomiyama)

((saqib.ahmed@thomsonreuters.com; @SaqibReports; +1 332 219 1971; Reuters Messaging: saqib.ahmed.thomsonreuters.com@reuters.net))