US employers added only half the number of new jobs that were expected last month, which, together with data showing slower growth in manufacturing and services, eased concerns about steep interest-rate rises.

The Labor Department yesterday reported that 110,000 payroll jobs were added in March, shocking Wall Street.

Economists expected far stronger job growth, but it was only one of several indicators pointing to gradually, not precipitously, slowing growth.

Taken together, analysts said the latest gauges of economic activity implied the Federal Reserve could extend a campaign of edging interest rates up in quarter percentage point increments to curb inflation instead of bigger, more disruptive moves.

A key report at midmorning, the Institute of Supply Management's index of national manufacturing activity, showed a slight ease to 55.2 in March from 55.3 in February.

Orders were strong, though, and analysts said the ISM report was not a cause for worry.

An ISM index on the service sector, which makes up more than two-thirds of the US economy, said activity grew in more rapidly in March than in February.

But the jobs outlook was not entirely bleak.

The March unemployment rate, which is calculated from a separate survey, declined to 5.2 per cent from 5.4 per cent. And average hourly earnings rose four cents from February to $15.95. Paul Flynn, head of foreign interest rate trading at bank of Ireland Global Markets, said the rise in hourly earnings was a slight concern, given the Fed's "heightened sensitivity to inflation data". However, he expects the US central bank will continue to raise interest rates a quarter point at a time.

"This will make people believe that perhaps the economy is not as prone to a rise in inflation this year as they were worried about a few weeks ago," said economist Kevin Logan of Dresdner Kleinwort Wasserstein in New York.

Markets were whipsawed by the data. The dollar initially plunged in value against other major currencies but later recovered while bond prices that soared on weaker-than-expected jobs reversed and fell once the ISM report was issued.

Niall Dunne, financial markets strategists at Ulster Bank said it was surprising that the dollar had not fallen further "given the anaemic nature of the payroll".

March job growth was the weakest since July, when only 83,000 were created. - (Reuters)