* U.S. manufacturing gains offset weak overseas data

* Investors see potential stock gains despite U.S. budget cuts

* Chesapeake shares off after SEC escalates investigation

* Groupon rallies after chief executive exits

* Indexes up: Dow 0.3 pct, S&P 0.2 pct, Nasdaq 0.2 pct

By Rodrigo Campos

NEW YORK, March 1 (Reuters) - U.S. stocks edged higher on Friday as strong economic figures more than offset growth concerns out of China and Europe and as investors shrugged off expected across-the-board U.S. goverment spending cuts.

Stocks opened sharply lower as Asian factories slowed and European output fell, but most of the losses disappeared after a report showed U.S. manufacturing activity expanded last month at its fastest clip in 20 months.

U.S. consumer confidence also rose in February as Americans turned more optimistic about the job market.

With government budget cuts set to begin on Friday, President Barack Obama blamed Republicans for failure to reach a compromise to avert the cuts, known as sequester. Investors, who have had plenty of time to prepare, appeared not too worried about the immediate impact.

"Despite the headlines, the drama and the finger pointing, the U.S. economy can still expand and as long as you see expansion, (equity) markets can go higher," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

Krosby said the market was also looking ahead to next week's government payrolls report. A stronger jobs market points to stronger consumer spending, an important component for economic growth. Separately, a government report on Friday said consumer spending rose in January as Americans spent more on services.

The Dow Jones industrial average rose 38.09 points or 0.27 percent, to 14,092.58, the S&P 500 gained 3.4 points or 0.22 percent, to 1,518.08 and the Nasdaq Composite added 7.68 points or 0.24 percent, to 3,167.87.

For the week so far, the Dow is up 0.7 percent while the Nasdaq and S&P are up 0.2 percent.

Equities continue to attract investors in an environment of low interest rates due to an accommodative monetary policy. The Dow is less than 1 percent away from its all-time intraday high of 14,198.10. Declines have been shallow and short-lived, with investors jumping in to buy on dips.

Intuitive Surgical jumped 8.3 percent to $552.18 after Cantor Fitzgerald analyst Jeremy Feffer upgraded the stock, saying the more than 11 percent slide in the stock on Thursday was a gross overreaction to a news report.

Groupon Inc surged 9 percent to $4.94 a day after the online coupon company fired its chief executive officer in the wake of weak quarterly results.

Gap Inc rose 2.7 percent to $33.81 after reporting fourth-quarter earnings that beat expectations and boosting its dividend by 20 percent, while Salesforce.com Inc posted sales that beat forecasts, sending shares up 7.2 percent to $181.41.

Chesapeake Energy Corp fell 1.7 percent to $19.81 after the U.S. Securities and Exchange Commission escalated its investigation into the company and its Chief Executive Aubrey McClendon for a controversial perk that granted him a share in each of the natural gas producer's wells.