* Nonfarm payrolls rise by 203,000 in November
* Report's strength could lead Fed to taper bond buys
* Jobless rate falls to 7.0 percent from 7.3 percent
* Average hourly earnings, workweek increase
* Inflation pressures remain muted
By Lucia Mutikani
WASHINGTON, Dec 6 (Reuters) - U.S. employers hired more
workers than expected in November and the jobless rate hit a
five-year low of 7.0 percent, raising chances the Federal
Reserve could start ratcheting back its bond-buying stimulus as
soon as this month.
Nonfarm payrolls increased by 203,000 jobs last month,
following a similarly robust rise in October, the Labor
Department said on Friday. The report, which showed broad gains
in employment and a rise in hourly earnings, suggested strength
in the economy heading into year-end.
"It will add further confidence to the Fed of a reduced need
for monetary stimulus in the U.S economy. We now see the bias
shifting in favor of a January tapering announcement," said
Millan Mulraine, senior economist at TD Securities in New York.
The unemployment rate dropped three tenths of a percentage
point to its lowest level since November 2008 as some federal
employees who were counted as jobless in October returned to
work after a 16-day partial shutdown of the government.
The decline came even as the participation rate - the share
of working-age Americans who either have a job or are looking
for one - bounced back from October's 35-1/2-year low.
A separate report showed improving labor market prospects
buoyed consumer confidence in early December.
Contributing to its firm tone, the jobs report showed that
the length of the average workweek reached a three-month high
and that 8,000 more workers were hired in September and October
than previously reported.
In addition, a measure of underemployment that includes
people who want a job but who have given up searching and those
working part-time because they cannot find full-time jobs fell
to a five-year low.
U.S. benchmark Treasury yields hit a three-month high as
traders raised bets the Fed could reduce its bond purchases as
early as its next meeting on Dec. 17-18, though they later eased
back and finished the day little changed. Major U.S. stock
indexes rose, with the S&P 500 ending a five-day losing streak
with its best gain in nearly a month.
The financial market reaction showed investors are less
anxious about the Fed's impending wind down of asset buying than
six months ago, when the first hints from Fed leaders of a
pullback sent stock prices tumbling and bond yields surging.
The central bank has been buying $85 billion in Treasury and
mortgage-backed bonds each month to hold long-term borrowing
costs down in a bid to spur a stronger economic recovery.
Chicago Fed President Charles Evans, who has been an
outspoken advocate for the Fed's stimulus program, said on
Friday he was open to trimming purchases this month, although he
would prefer to see an even healthier jobs market.
"I'll be open-minded," he told Reuters Insider. "Everything
else (being) equal, I would like to see a couple of months of
good numbers, but this was improvement."
Many economists still expect the central bank to wait until
March before dialing back its bond purchases, but a Reuters poll
of big bond dealers found a growing number now see December or
January as likely.
MIXED ECONOMIC DATA
While labor market and consumer spending indicators are
strengthening, the housing market and business spending have
slowed. Inflation is still low, which economists say will make
Fed officials cautious in pulling back its stimulus.
Economists also believe the Fed will be wary of dialing back
bond purchases before lawmakers strike a deal to fund the
federal government. That could come as soon as next week,
however. Congressional aides have said negotiators are down to
the final details.
A separate report from the Commerce Department showed
consumer prices were steady in October, after having risen by
0.1 percent for three straight months. Over the past 12 months,
prices rose 0.7 percent, the smallest gain since October 2009.
Excluding food and energy, prices were up just 0.1 percent
for a fourth straight month. These so-called core prices were up
only 1.1 percent from a year ago. Both inflation measures
remained well below the Fed's 2 percent target.
"While fiscal issues appear less ominous and employment
prospects look favorable, we still think that before pulling
back on asset purchases the Fed would like to see more evidence
that housing is stabilizing and that inflation is finding a
floor," said Michael Feroli, an economist at JPMorgan.
The drop in the unemployment rate brought it closer to the
6.5 percent level that policymakers said would trigger
discussions over when to raise interest rates from their current
levels near zero.
Some economists think the Fed will lower that threshold to
convince markets that any rate hike is a long way off.
"We expect that when tapering starts, it will be coupled
with stronger forward rate guidance, including a cut in the
unemployment rate threshold," said Ted Wieseman, an economist at
Morgan Stanley in New York.
The job gains in November were broad-based, with 63.5
percent of industries increasing employment. Private-sector
payrolls rose 196,000. But government employment also increased
as hiring by state and local governments offset a drop in
Manufacturing payrolls moved up 27,000, the fourth straight
monthly gain and the largest since March 2012. Construction
employment rose 17,000, building on an October increase even
though the housing market has lost some momentum.
Growth in retail employment slowed, with the sector adding
22,300 last month compared to 45,800 in October. A late
Thanksgiving holiday could have resulted in some seasonal hiring
not being captured in November's report.
Leisure and hospitality, as well as professional and
business services payrolls, showed gains, but at a slower pace
than in October.
Average hourly earnings rose by four cents last month, while
the length of the workweek edged up to an average of 34.5 hours
from 34.4 hours - both bullish signs for the economy.