What type or weight of yarn should I use for a baby blanket?

Most baby yarns are sport weight, but you can also use a worsted weight (which is kind of the standard yarn weight). I agree that wool is probably a bad idea. Irritation issues aside, it's not easy to wash 100% wool, and a baby item will need to be washed frequently. Lion's Brand makes a good sturdy, yet soft baby yarn: Vanna's Choice Baby (http://cache.lionbrand.com/yarns/vannasChoiceBaby.... Circular needles are fine to knit blankets with. Just use two of them and knit as if you were using straight needles, and put point protectors on the ends so the stitches don't slip off. It's common to knit blankets with them so you can fit more stitches. It will still come out square. As far as finding patterns go, you should sign up for an account at ravelry.com There's a pattern search tool that let's you find tons of free patterns and you can even sort by type of yarn! Good luck!

I don't know too much about knitting (I'm a crocheter), but I wouldn't use circular needles or wool for a baby blanket. By definition, a blanket should be square or rectangular, not round, and wool can be very irritating. I'm allergic to it, as are many people. Most craft stores will have a decent selection of baby-weight yarn in acrylic, which would be a better bet. Any craft store should also have a good selection of pattern books, and some (such as Michael's) will have free patterns hanging around. I have seen many (and even own one) pattern book just for baby blankets. If there is a Michael's near you, they sometimes have classes on knitting, or a help class, that will help you with your project. Check it out.

Here are two links for you.

Worsted weight is ok but a little heavy for a solid pattern. The baby yarns are soft but tend to split IMO. Don't attempt lacy patterns yet as there is a lot of counting and can be frustrating for a beginner. You can make squares or panels in different colours or use matching variegated yarn for contrast and join them togerher later.

http://www.bernat.com/pattern.php?PID=4175&cps=211...