* Nonfarm payrolls forecast rising 196,000 in December

* Unemployment rate seen steady at 7 percent

* Average earnings seen rising, workweek steady

* Report expected to show economy gaining steam

By Lucia Mutikani

WASHINGTON, Jan 10 (Reuters) - U.S. employment likely increased solidly in December in the latest sign of strengthening fundamentals that look set to put the economy on a faster growth path this year.

Nonfarm payrolls probably rose by 196,000 jobs last month, according to a Reuters survey of economists, slightly below November's 203,000 gain, but a touch above the monthly average for the three months through November.

The poll was conducted before reports on Wednesday, which showed private sector employers hired staff at the fastest pace in 13 months in December, while small businesses created the most jobs in nearly eight years. That left some economists anticipating an even stronger payrolls number than forecast.

"Evidence is mounting that the economy is kicking into higher gear," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "It is transitioning from one that was stuck in a rut for several years to one that's poised to grow faster this year."

The Labor Department will release the closely watched employment report at 8:30 a.m. (1330 GMT).

If the forecasts are right, the report will add to a string of data - from consumer spending and trade to industrial production - that has suggested the economy ended 2013 on strong footing and is positioned to gain even more strength this year.

The change in the economy's fortunes, which gave the Federal Reserve confidence last month to start dialing back its massive monetary stimulus, reflects waning fiscal uncertainty after lawmakers in Washington agreed on a two-year budget.

"Consumers were holding back because they were not sure what to expect from the economy. Businesses were doing the same, not hiring or spending money on equipment," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

"Consumers seem to have opened up their wallets. They are spending more and as a result the economy should look better, and that means more hiring."

JOBLESS RATE SEEN HOLDING AT FIVE-YEAR LOW

Despite the anticipated job gains, the unemployment rate is expected to have held steady at a five-year low of 7 percent after a surprisingly large 0.3 percentage point drop in November.

Annual revisions to the data from the Labor Department's survey of households, which is used to calculate the jobless rate, could mean a rewrite of history, but any changes are expected to be small.