A smaller-than-expected 35,000 jobs were lost in the United States last month as hiring in some regions was offset by layoffs stemming from the damage caused by Hurricane Katrina, according to a Labor Department (search) report on Friday.

The national unemployment rate (search) kicked up to 5.1 percent in September — the highest rate since May — from 4.9 percent in August. Wall Street economists had expected a higher job-loss total of 143,000 but had correctly anticipated the 5.1 percent jobless rate.

The department indicated that September payroll growth likely would have been in line with the 194,000 jobs-a-month that have been created on average over the past year if not for the blow delivered by Katrina (search), which struck the Gulf Coast on August 29.

Another hurricane, Rita, hit during the third week of September, affecting the collection of the monthly job data, but its impact will not be captured until October's report.

September marked the first month in which there were job losses since May 2003, when 26,000 were cut.

The department revised up its estimates for job growth in July and August by a combined 77,000. It said there were 211,000 jobs created in August instead 169,000 and 277,000 in July rather than 242,000.

U.S. Treasury debt prices sank after the jobs data was published as investors bet it meant interest rates will keep rising, but the dollar strengthened initially on the signs of a relatively healthy underlying economy. U.S. stock index futures pointed to a stronger market opening.

ECONOMY RETAINS MOMENTUM

Analysts said the much-anticipated data — the first major government report that covers the aftermath of Katrina — still depicted an economy that carried hefty momentum.

"Take a look also at July and August ... big upward revisions. All of a sudden, if (Federal Reserve (search) Chairman Alan) Greenspan is right and you come out of hurricanes the same way you go in, then we went in a lot stronger than we thought and we'll come out a lot stronger than we thought," said economist Chris Low of FTN Financial in New York.

He added that the jobs report likely reinforces the view that the U.S. central bank will extend its rate-rise campaign, something that Fed spokesmen have been strongly hinting at in recent days. The Fed already has raised short-term U.S. interest rates 11 times since mid-2004 and has expressed its intent to keep potential inflation in check.

The Labor Department said it had sought a rough idea of Katrina's impact on job markets by eliminating survey results from the areas in which the storm struck hardest. "This exercise showed that total nonfarm employment would have increased by an amount in line with the prior year's average," it said, which it calculated at 194,000 a month.

In a measure of Katrina's direct effect on the job market, the department said some 80,000 jobs were lost in leisure and hospitality industries — not surprising since hard-hit New Orleans is tourist magnet — compared with a 37,000-job gain in August.

Retail industries lost 88,000 jobs last month and factories 27,000 — a fourth month in a row for layoffs on the factory floor. There were some areas in which jobs were created last month, including 52,000 new jobs in professional and business services, 49,000 in education and health and 31,000 in the government.