US employers added a smaller-than-expected 113,000 jobs in July and the unemployment rate jumped unexpectedly to 4.8 per cent, labor department data showed yesterday, igniting hopes for an interest-rate pause by the Federal Reserve.

Analysts said the intently awaited report made it easier for Fed policymakers to decide to halt their two-year campaign of interest-rate rises when they meet on Tuesday.

Though average hourly earnings continued to rise last month, the unemployment rate was the highest since a matching 4.8 per cent in February and was contrary to Wall Street economists' forecasts that it would be unchanged from June's 4.6 per cent. "There is no doubt this number has given the market the feeling the Fed is not going to raise rates on Tuesday," said Kevin Flanagan, a bond strategist with Morgan Stanley in Purchase, New York. "The notion is the Fed is going to pause on Tuesday."

Bond prices shot up and stock futures climbed while the dollar weakened against other major currencies as traders in all markets reckoned chances for an 18th straight interest-rate rise on Tuesday had tumbled.

Analysts had forecast a more robust 142,000 new jobs would be generated in July. The department revised June's new-job total up to 124,000 from a previously reported 121,000 and said that in May 100,000 jobs were created rather than 92,000.

Still, average hourly earnings increased seven cents for a second straight month to $16.76 (€13.11) in July, a 0.4 per cent increase, the same as in June.

In the year through July, average hourly earnings rose 3.8 per cent, down slightly from the 3.9 per cent year-over-year gain posted in June.

The business survey, which measures payrolls, showed manufacturers shed 15,000 jobs last month after adding 22,000 in June and goods-producing businesses overall cut 2,000 jobs after adding 23,000 in June.

"We expected the report to reflect the fact that the economy is slowing down," said currency strategist Boris Schlossberg of Forex Capital Markets in New York. "Housing has been responsible for four out of 10 jobs over the last three or four years, and housing's been in a free fall."

In July, construction businesses added 6,000 jobs but that followed back-to-back job reductions of 4,000 in May and June.