U.S. companies slashed 108,000 jobs in March as war in Iraq battered the economy at home. The unemployment rate held at 5.8 percent after thousands of job seekers gave up and dropped out of the work pool.

Job cuts were widespread with few hiring gains, the Labor Department reported Friday. That ignited fresh recession worries among economists, who said that a quick end to the war couldn't even resuscitate the jobs market, which is expected to worsen in coming months.

"It's hard to ignore the feeling that we're much closer to a double-dip recession than seemed likely even a month or two ago," said Bill Cheney, chief economist at John Hancock Financial Services.

Analysts had forecast more modest payroll losses of about 40,000. In February, businesses shed 357,000 jobs, more than previously reported.

"All indicators point to further losses in the near future," said Mark Zandi, chief economist at Economy.com. "The weakness is very broad-based. Really every corner of the country has been touched."

The report and war developments limited gains on Wall Street. The Dow Jones industrial average closed up almost 37 points. The Nasdaq was down 13 points.

Fewer people looking for work was a factor in the unchanged jobless rate, which economists had expected to rise to 5.9 percent. Discouraged job seekers dropping out of the employment pool rose to 474,000 in March, up from 330,000 a year ago.

Also likely skewing the data was the activation of about 200,000 Reserve and National Guard members leading up to the March 20 war start. Labor Department analysts said they have been unable to quantify the impact on the report, which is limited to civilian employment.

Even before the war, businesses were wary about making big spending and hiring commitments in a weak economy struggling toward recovery. A big fear is that consumers, whose spending accounts for two-thirds of all U.S. economic activity, will continue to tighten their wallets amid the war and even more job losses.

Economists are mixed about whether the Federal Reserve will lower a key interest rate from the current 41-year-low at its meeting next month.

President Bush has proposed a new round of tax cuts to help jump start the economy. But his $725 billion package is bogged down in Congress over opposition from Democrats and some Republicans concerned about the size, especially during a time of war and mounting budget deficits. Friday's employment report renewed calls for passage from his administration.

"Now is the time for Congress to act on the president's plan to ensure that the economic news gets better, the American economy grows stronger and American jobs grow faster," said Commerce Secretary Donald Evans. "America's unemployed workers are counting on them to do so."

But Democrats said the growing unemployment rolls are evidence that Bush's economic policies have failed.

About 8.4 million workers are unemployed, with the average duration about 18 weeks.

"We need to create jobs, and experience has shown that a reckless tax cut that explodes the deficit even further, drains resources from veterans, health care and education, and gives most Americans less than $2 a week is not the answer," said House Democratic Leader Nancy Pelosi of California.

Job losses continued in manufacturing, which lost 36,000 positions last month. Employment in that sector has fallen by 2.5 million since a peak in April 1998.

The service sector, where most Americans are created, also was hammered last month. That category lost 94,000 jobs in March, following a 256,000 loss in February. Stores, restaurants and bars accounted for much of the loss, along with government and the struggling airline industry.

Some industries in the service sector, the industry producing the most new jobs, had modest gains. Construction employment edged up by 21,000 in March following a decline the previous month. The financial industry also was up slightly, bolstered by hiring in mortgage banking. Record low mortgage rates have propelled home sales and refinancing activity, fueling hiring in those areas.