Bullish U.S. employment report puts Fed under spotlight

U.S. employers added the largest number of workers in nearly three years in November and wage gains picked up, a sign of economic strength that could draw the Federal Reserve closer to raising interest rates.

Nonfarm payrolls surged by 321,000 last month, the most since January 2012, the Labor Department said on Friday. The unemployment rate held steady at a six-year low of 5.8 percent.

"I think it will put pressure on the Fed to raise rates in the first half of next year by June, perhaps even March," said Craig Dismuke, chief economist at Vining Sparks in Memphis, Tennessee.

Data for September and October were revised to show 44,000 more jobs created than previously reported, adding more sparkle to the report. Economists polled by Reuters had forecast payrolls increasing by only 230,000 last month.

U.S. stocks opened higher, while the dollar jumped against the euro to its highest level since August of 2012 as traders moved forward bets on when U.S. rates would rise. The yield on the two-year Treasury note reached its highest level since May 2011.

November marked the 10th straight month that job growth has exceeded 200,000, the longest stretch since 1994 and further confirmation the economy is weathering slowdowns in China and the euro zone, as well as a recession inJapan.

A separate report from the Commerce Department showed exports increased 1.2 percent in October, helping to narrow the trade deficit. Exports to the European Union, China andJapan all increased.

The report provided the latest sign that a strengthening jobs market is starting to spur faster wage growth, a key factor that will help determine the timing of the U.S. central bank's first rate hike.

Average hourly earnings rose by 9 cents in November, the largest increase since June of last year.

"If you see a few more months of improvement of this magnitude, it is a clear sign that the labor market is tightening and is poised to break out next year," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania.

Nevertheless, the latest gain in earnings left them up just 2.1 percent from a year ago - in the same tepid range they have been in for the past few years and well below the 3 percent or more economists say the Fed would want to see before lifting benchmark interest rates.

The Fed has held overnight borrowing costs near zero since December 2008. Ahead of the report, futures markets pointed to the first rate hike in September of next year; after the data, they indicated traders were betting rates would rise in July.

Details of the employment report were upbeat, with most of the measures Fed Chair Janet Yellen tracks to gauge the amount of slack in the labor market showing further improvement.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to a fresh six-year low of 11.4 percent from 11.5 percent in October.

The ranks of the long-term unemployed are also shrinking.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, was steady at 62.8 percent.

Job gains were broad-based, with employment in professional and businesses services jumping by 68,000. Retail payrolls increased by 50,200 as employers stepped up hiring in anticipation of a strong holiday shopping season.

Manufacturing and construction employment accelerated from October. Government payrolls increased by 7,000. The length of the workweek increased to an average of 34.6 hours, the highest since May 2008, from 34.5 hours in October.