WASHINGTON - The unemployment rate unexpectedly rose in May, the number of jobs outside of government fell for the first time in more than four years, and wages rose less than was expected, Labor Department figures showed.

The unemployment rate rose to 4.1% from a 30-year low of 3.9% in April, the government said Friday. Businesses shed 116,000 jobs, while the government added 357,000 temporary workers to help with the 2000 Census.

Combined, private and government payrolls grew 231,000, in what was still the lowest increase in three months. Manufacturing, construction, and retail jobs all fell.

U.S. Treasury securities and stocks soared after news of the report, which followed other signs earlier in the week that the economy might be cooling and suggested the Federal Reserve might refrain from raising interest rates this month after six increases in the past year.

"This seems like the best of all possible stories," said William Cheney, chief economist at John Hancock Mutual Life Insurance Co. in Boston. "It's hinting that the labor market is easing off a bit. That's everything the Fed would regard as good news."

Workers' average hourly earnings in May rose 0.1%. That followed a 0.4% rise in April earnings.

"It would suggest wage gains are staying in line with productivity increases and that there's little pressure on overall prices," said Lynn Reaser, chief economist at Bank of America Capital Management Inc. in St. Louis. "It could well cause the Federal Reserve to stay on hold in June."

The drop in nongovernment jobs was the first since January 1996 and the largest since November 1991, the Labor Department said.

In April the total number of jobs created was 414,000; the government had initially estimated 340,000.

Analysts surveyed by Bloomberg News had expected a 3.9% unemployment rate and the addition of 378,000 jobs. They expected a 0.4% increase in average hourly earnings.

Fed policy-makers keep a close eye on the monthly employment statistics as increasing demand for workers could push inflation higher over time. The Fed raised the overnight bank lending rate to a nine-year-high 6.5% on May 16. The Fed's Open Market Committee meets next June 27-28.

Other economic reports last week suggested the higher interest rates have started to do what they were intended to do: slow the economy to head off the threat of accelerating inflation.

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