The US unemployment rate fell to a 2.5-year low of 8.6 per cent in November and companies stepped up hiring, further evidence the economic recovery was gaining momentum.

Nonfarm payrolls increased 120,000 last month, the Labor Department said today, in line with economists' expectations for a gain of 122,000.

The relative strength of the report was also bolstered by revisions to the employment counts for September and October to show 72,000 more jobs created than previously reported.

While part of the decline in the unemployment rate from 9 per cent in October was due to people leaving the labor force, the household survey from which the jobless rate is derived also showed solid gains in employment.

The unemployment rate had been expected to hold at 9 percent. It last dropped by 0.4 percentage point in January.

"The really good news is that employment has grown for four months running - in large steps. There was a solid increase in private employment. Everything there looks steady, but clearly healthy and positive," said Pierre Ellis, a senior economist at Decision Economics in New York.

However, retail accounted for more than a third all new private sector jobs in November.

US stock index futures added gains after the report, while Treasury debt prices briefly extended losses and interest rate futures held steady. The dollar extended gains versus the yen.

Reuters