US STOCKS-Wall St inches up on bipartisan talks; energy shares rise

* Obama meets with Senate Republicans at White House

* Energy sector up after rules on ethanol loosened

* JP Morgan (Other OTC: JPYYL - news) , Wells Fargo (Other OTC: WFCNO - news) slip after posting earnings

* Indexes: Dow up 0.08 pct, S&P flat, Nasdaq up 0.1 pct

By Julia Edwards

NEW YORK, Oct (KOSDAQ: 039200.KQ - news) 11 (Reuters) - U.S. stocks edged up in choppy trading on Friday following the biggest rally in more than nine months as both sides in Washington worked for a solution to a possible U.S. default and an end to a partial government shutdown.

Uncertainty about whether progress will be made over the weekend could be contributing to Friday's caution. Signs of a potential short-term deal emerged on Thursday, boosting stocks, but no agreement has yet been reached.

President Barack Obama will press his case for a quick reopening of the entire federal government, coupled with a short-term increase of U.S. borrowing authority to avoid a U.S. default, when he meets with Senate Republicans on Friday.

In return, Republicans want Obama to commit to broader deficit reduction steps after the current standoff is settled.

Energy stocks led the S&P 500 index, up 0.5 percent, after the Environmental Protection Agency proposed lowering the required amount of ethanol to be blended into U.S. gasoline after Thursday's market close on Thursday.

Tesoro led energy stocks, rising 4.2 percent to $45.38 despite a report by Reuters on Thursday that a Tesoro pipeline spilled more than 20,000 barrels of crude oil onto a North Dakota farm.

Investors looking to buy may also buy energy stocks, which have cheapened of late. Energy is one of three S&P sectors that have lost ground in the last month.

"Exxon and Chevron were trading near lows of the year.... Everybody's looking at, 'What can I buy?'" said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas.

U.S. crude futures were on track for the largest weekly percentage decline in three weeks due to the fiscal standoff in Washington.

The Dow Jones industrial average rose 49.84 points, or 0.33 percent, to 15,175.91, the S&P 500 gained 2.84 points, or 0.17 percent, to 1,695.4 and the Nasdaq Composite added 6.728 points, or 0.18 percent, to 3,767.475.

The partial government shutdown is now in its eleventh day and less than a week remains before an Oct. 17 deadline to extend the government's borrowing authority and avoid a debt default. The crisis in Washington threatens to damage the fiscal standing of the United States.

The Thomson Reuters/University of Michigan index of consumer sentiment fell in October to its weakest in nine months and was below expectations.

"For as much uncertainty that is out there, this market doesn't seem very scared. Since the financial crisis, every time you've bought dips, you've been rewarded," said Dick.

The S&P financial index slipped 0.3 percent after earnings reports from JP Morgan Chase (Other OTC: JFTTL - news) & Co, which was down 0.1 percent at $52.42, and Wells Fargo & Co, which fell 0.76 percent to $40.66. Wells Fargo was the biggest drag on the S&P 500.

JP Morgan, the biggest U.S. bank by assets, reported a rare quarterly loss after incurring $9.2 billion in legal expenses. Excluding litigation expense and reserve release, it earned a profit of $5.82 billion, or $1.42 a share.

Wells Fargo & Co, the biggest U.S. mortgage lender, reported a 13 percent rise in third-quarter profit, but its mortgage banking income fell sharply as the refinancing boom began to fade.

Retail apparel chain Gap was down 2.7 percent to $36.74 a day after reporting net sales were flat compared with last year.