* Monthly job losses of 129,000 biggest in over 30 years
* 2008 job gains wiped out by January decline
* Job market seen worsening in coming months (Adds details on Bank of Canada, stimulus plans, currency moves, market reaction)
By Louise Egan
OTTAWA, Feb 6 (Reuters) - Canada suffered its worst job losses in over three decades in January as the recession forced employers to cut a record 129,000 workers and pushed the unemployment rate to 7.2 percent from 6.6 percent in December.
The report by Statistics Canada, which raises pressure on the Bank of Canada to cut rates further from their 50-year low, showed the biggest monthly downturn in employment since the federal agency began using its current methodology in 1976. It also showed record job losses in the manufacturing sector.
"I can't see one glimmer of hope in this report when we dig beneath the headlines," said Derek Holt, an economist at Scotia Capital.
"The optimists are just taking body blows all over the place here," he said.
The Canadian dollar
The worse than expected January job losses single-handedly wiped out the net employment gains of 2008. Canada has shed 213,000 jobs since October. Analysts had forecast job losses of 40,000 and an unemployment rate of 6.8 percent, according to a Reuters poll.
The monthly decline was also bigger than any seen in the previous economic troughs of the 1980s and 1990s, Statscan said. That raised fears this recession will be deeper and more protracted than policy-makers have predicted.
It could lead the Bank of Canada to cut its overnight lending rate by a half-point in March to 0.5 percent from 1 percent, bringing it closer to the zero limit.
"Everybody is prepared for a pretty weak first quarter, but these numbers are probably surprising the more bearish views," said Craig Wright, chief economist at the Royal Bank of Canada.
MORE TO COME
Many economists disagree with the Bank of Canada's projection that the economy will recover more quickly than in past recessions, with growth returning in the third quarter. Last month it projected the economy would shrink an annualized 4.8 percent in the first quarter after contracting 2.3 percent in the fourth quarter of last year.
Governor Mark Carney and Senior Deputy Governor Paul Jenkins will likely be grilled on the grim jobs outlook next Tuesday when they appear before a parliamentary finance committee.
The jobs report, followed by U.S. data showing the most severe job losses there in 34 years [ID:nN06435445], also supports Finance Minister Jim Flaherty's efforts to push a $40 billion stimulus package quickly through Parliament.
But stimulus may not kick in soon enough to prevent more carnage in the labor market in coming months.
"This is the start of a wave of job losses that will likely extend through the first half of this year, said Sal Guatieri, senior economist at BMO Capital Markets.
The economy could easily shed 324,000 jobs this year, said TD Economics.
Canadian companies have been announcing layoffs on an
almost daily basis in recent weeks. Montreal-based aircraft
maker Bombardier
The dramatic downturn in January employment numbers hit both full-time and part-time employees and was spread across the private and public sectors.
Manufacturing, highly sensitive to U.S. demand, was the worst hit sector, losing just over 100,000 jobs largely because of a slumping auto sector.
However, TD economist Diana Petramala injected some perspective into the panic-struck reaction to the report.
"Canada is coming off a labor market boom that added 891,900 jobs from January 2006 to October of 2008, leaving Canada with a much larger job market than 20 years ago," she wrote in a note. (Additional reporting by Toronto Treasury Desk; editing by Rob Wilson)