* NZ jobless rate jumps on lost jobs, bigger workforce
* Employment falls amid patchy recovery
* Data backs views central bank will pause on rate rises
* NZ dollar slides, debt rises (Adds comment, market reaction, background)
By Mantik Kusjanto
WELLINGTON, Aug 5 (Reuters) - New Zealand's jobless rate rose more than expected in the second quarter as jobs were lost and more people looked for work in the fragile economy, prompting markets to scale back expectations for more interest rate hikes this year.
A rate rise is still expected next month, but analysts now expect the central bank to hold off on further increases for the rest of the year.
A Reuters poll taken last week showed forecasters had expected a rise in September and one more before year-end. [NZ/POLL]
The New Zealand dollar
The figure was well above economists' forecasts for 6.4 percent in a Reuters poll.
"We still expect the Reserve Bank to hike in September, but beyond that, a pause is a real possibility," said ANZ-National senior economist Khoon Goh.
Others said the central bank needed to be even more cautious.
"Given this and other soft domestic data flow, and also the fact that we're seeing global commodity price weakness now, we believe the RBNZ should be pausing at its next meeting," said Goldman Sachs JBWere economist Philip Borkin.
Last week, the Reserve Bank of New Zealand (RBNZ) raised its cash rate by 25 basis points to 3 percent but said further hikes would probably be more gradual due to a subdued economic outlook.
Markets have been lowering expectations of how far and how fast rates will increase because of the uneven domestic recovery, which has been dogged by sluggish consumption, a stagnant housing market, and slowing migration, along with a softening global outlook.
On Wednesday, dairy giant Fonterra said it would review the forecast payout level for farmers in the coming season because of a fall in world prices over past four months. See [ID:nSGE67309D]
Fonterra's moves are closely tracked because the company generates about 7 percent of the country's economy.
The job data showed part-time employment fell 1.6 percent, overshadowing a 0.2 percent rise in full-time jobs growth.
RATE PAUSE RISK
Markets now see a 64 percent chance of a rate rise at the
Sept 16 review
Traders also scaled back expectations for total rate rises over the next 12 months to 72 basis points (bps) from 87 bps last week.
The kiwi
The sharp drop in the jobless rate in the first quarter to 6.0 percent from a 10-year high of 7.1 percent is now regarded as a statistical anomaly.
New Zealand's jobless rate compares with the OECD average of 8.6 percent and 5.2 percent in Australia.
The labour market usually lags the broader economy, and weakness at a time when a recovery is underway and gathering pace is no surprise.
The RBNZ started to bring rates back to a more normal level in June amid expectations that the economic recovery would spur inflationary pressures.
It had cut rates to record low 2.5 percent to support the economy through recession and the global financial crisis.
Earlier this week, data showed wages grew modestly in the June quarter, while a survey by the National Bank of NZ last month showed businesses' hiring intentions falling.