* Jobs jump 49,500, extending a remarkably strong run
* Unemployment holds at 5.1 pct as more look for work
* A$ surges as market narrows odds for rate increase (Adds graphic)
By Wayne Cole
SYDNEY, Oct 7 (Reuters) - Australian employment surged past all expectations in September as firms hired a massive 55,800 full-time workers, reviving the risk of a hike in interest rates and lifting the local dollar toward a 27-year peak.
Thursday's data showed a net 49,500 new jobs created in September, more than twice the market forecast. The unemployment rate held steady at 5.1 percent, though only because the buoyant economy tempted a lot more people to look for work.
Such strength could also tempt the Reserve Bank of Australia (RBA) into hiking interest rates as soon as November, after it surprised many this week by keeping the cash rate at 4.5 percent.
"It doesn't get much better than this," said Brian Redican, senior economist at Macquarie, summing up the general reaction to yet another jobs surprise after months of strong gains.
"When you've got rapidly rising employment and a rising
participation rate, it really underlines just how strong the
economy is," he added. "But it also adds to the risk that
growth will feed inflation, so it's a green light for rate
hikes."
For a graphic, click: http://link.reuters.com/ruh37p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
The local dollar
Interbank futures <0#YIB:> tumbled as the market lifted the
probability of a rate rise in November to 62 percent, from 36
percent earlier. A move to 4.75 percent is now almost fully
priced in by December and there are 58 basis points of
tightening implied for the next 12 months
The only barrier to a move in November could be the consumer price report (CPI) on October 27, where a tame inflation reading could convince the RBA they have time to pause a little longer.
"A number like this reduces the hurdle on CPI at the end of the month to justify a rate hike," said Ben Jarman, an economist at JPMorgan.
"If we're getting data like this that tells us household income keeps surging then arguably the RBA can't wait for inflation to turn before they hike." JOBS BONANZA
Employment has outstripped all expectations for months running, rising by a huge 360,000 in the year to September. Putting that in perspective, an equivalent increase in U.S. payrolls would be around 4.3 million.
Jobs growth has been fastest in the booming mining and energy sector where employment grew 20 percent in the year to August. They also tend to be well paid jobs, boosting household incomes across the economy.
A record pace of resource investment is also driving jobs in construction. The A$43 billion Gorgon liquefied gas project alone will employ 10,000 at the peak of construction.
For the year to August, the largest number of jobs were created in professional, scientific and technical services with an increase of 66,500, followed by education and health.
Most leading indicators of labour demand also point to further jobs growth ahead. Job advertisements hit a 20-month high in September, while the government's measure of vacancies jumped almost 10 percent in the three months to August.
Firms are already complaining of a shortage of skilled workers and policy makers fret that should unemployment fall much under 5 percent, it will breed wage and price pressures.
"For a forward-looking RBA, it knows that we are likely to see a sub-5 percent unemployment rate over the next 6 months," said Su-Lin Ong, a senior economist at RBC Capital Markets.
"Once it is sub 5 percent it is going to start generating upward pressure on wages, labour costs and ultimately inflation," she added. "We're getting pretty close to that point."
(Editing by Balazs Koranyi)