US employers added only 78,000 workers to their payrolls last month, the weakest job growth in 21 months, the government said yesterday in a report that fanned worries on Wall Street over a slowing economy.

The disappointing job growth - less than half what analysts had forecast - pushed government bond prices up sharply and spurred a brief sell-off in the dollar as traders guessed the Federal Reserve may soon end its year-long campaign of interest-rate hikes.

The news, however, was not entirely bearish as the unemployment rate in May edged down to 5.1 per cent, its lowest since September 2001, from April's 5.2.

"Payroll employment continued to grow over the month in healthcare and construction, but was little changed in the other major industry sectors," the Labor Department said.

It was the weakest month for nonfarm job growth since August 2003, when payrolls edged up just 2,000, and well-below expectations on Wall Street for 185,000 new jobs. It also marked a sharp slowdown in job creation after a 274,000 job surge in April.

"The report is moderate - it is not terrible," said James Glassman, senior economist at JP Morgan Securities in New York. "There is nothing wrong with the economy. What it confirms is that the economy is not out of control."

Still, some analysts said the Fed, which has raised overnight borrowing costs in eight small steps dating to last June, might step aside after a quarter-percentage point hike at its next meeting.

Factory payrolls shrank by 7,000 jobs in May, a third straight monthly decline that brought manufacturing employment nearly down to its recent low hit in February 2004. Manufacturing weakness has led to worries over a broader economic slowdown, although some economists think a pull-back in factory production reflects a temporary effort to whittle down inventories.

Construction firms added 20,000 workers to their payrolls, which have been expanding steadily as low mortgage rates have fuelled a housing boom.