Sturdy US jobs report boosts chances of Fed rate hike

The unemployment rate rose to 5.5% from a near seven-year low of 5.4% in April

US job growth accelerated sharply in May and wages picked up, signs of strong momentum in the economy that bolster prospects for a Federal Reserve interest rate hike in September.

Nonfarm payrolls increased 280,000 last month, the largest gain since December, the Labor Department said on Friday.

While the unemployment rate rose to 5.5 per cent from a near seven-year low of 5.4 per cent in April, that was because more people, including new college graduates, entered the labor force, indicating confidence in the jobs market.

"Today's strong jobs report shows that the underlying trend in the economy is continuing to improve. This leaves the Fed on course to start hiking rates in September," said Michelle Meyer, senior economist at Bank of America Merrill Lynch in New York.

The report joined May automobile sales and manufacturing data in suggesting economic activity was gaining traction after a slow start in the second quarter. Doubts had sprung up in financial markets over whether the Fed would be able to raise rates this year after a first-quarter contraction in the gross domestic product and a string of weak data in April, including soft figures on consumer spending and industrial production.

The jobs data helped dispel those doubts. The dollar rallied, hitting a 13-year peak versus the yen. Prices for US government debt dropped sharply, with the yield on the two-year note rising to a more than four-year high. US stocks, however, were little changed.