(Reuters) - U.S. job growth slowed in November and monthly wages increased less than expected, suggesting some moderation in economic activity that could support expectations of fewer interest rate increases from the Federal Reserve in 2019.

KEY POINTS:

* Total payrolls rose 155,000 vs 200,000 estimate and downwardly revised 237,000 prior (original 250,000)* Private payrolls rose 161,000 vs 200,000 estimate and upwardly revised 251,000 prior (original 246,000)

* Unemployment rate unchanged at 3.7 pct vs 3.7 pct estimate

* Average hourly earnings rose 0.2 pct month-to-month vs 0.3 pct estimate and downwardly revised 0.1 pct prior (original 0.2 pct)

* Average hourly earnings rise 3.1 pct year-over-year vs 3.1 pct estimate and unrevised 3.1 pct prior

* U-6 rate rises to 7.6 pct vs 7.4 pct prior* Labor force participation unchanged at 62.9 pct

* Household survey: Workforce grew by 133,000; employed rose by 233,000; unemployed fell by 100,000

MARKET REACTION:

STOCKS: S&P e-mini futures ESv1 pare losses, point to little change at the opening bell

BONDS: 2- US2YT=RR and 10-year US10YT=RR Treasury yields rise slightly from prior levels; 10-year yield around 2.9 pct; 2s at 2.76 pct; 2-10 spread just above 13 basis points

FOREX: The dollar index .DXY weakens modestly

RATE FUTURES: Fed funds contract for January 2020 FFF0 unchanged in price; implied fed funds effective rate at expiry 2.63 pct vs current effective rate of 2.20 pct

COMMENTS:

KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CAMBRIDGE GLOBAL PAYMENTS, TORONTO

“This was slightly disappointing on the headline level, but wage growth coming in as expected it keeps the Fed on track to raise rates in December.

“The overall effect has been a sell-off in the dollar largely in a reaction to a lower expectations for rate hikes in 2019.

“This comes after a number of non-voting members of the FOMC have articulated increasing skepticism on the U.S. economy.

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, US SPDR BUSINESS AT STATE STREET GLOBAL ADVISORS

“The market has reacted positively to today’s report at least so far. It’s somewhat of a Goldilocks report. The headline number missed and average hourly earnings stayed the same. There’s not enough to accelerate rate hikes.

“The Fed is still likely to raise rates in December. Next year becomes a bit of a coin toss.

“Investors want solid economic data but they don’t want it to be too good. The market’s reacted positively to this report. It demonstrates growth but doesn’t necessarily accelerate the Fed’s pace of rate hikes for 2019.

“Wages continue to be a key. The fact they stayed at 3.1 percent indicates that wages are growing but didn’t pick up so that’s not likely to follow through to increase inflation too much.

“It was very solid across categories of jobs with the exception of technology, which was interesting, and government.

One thing we hear, in technology, is that they continue to have difficulty finding workers for the skills they need.”

JOE SALUZZI, CO-MANAGER OF TRADING, THEMIS TRADING, CHATHAM, NEW JERSEY:

“At this point people are more concerned about the Fed. So this gives more ammunition for the Fed not to move and for the Fed to kind of pull back. Well, that’s a good thing. It’s that fine balancing act that we always look for, that kind of Goldilocks mentality. I think that number is actually a good number where it shows that is there is a positive jobs number, but it’s not too good.”

BRYCE DOTY, SENIOR PORTFOLIO MANAGER, SIT FIXED INCOME ADVISORS, MINNEAPOLIS:

“The headline number is definitely weaker-than-expected. It makes me think that we are not seeing more hiring is due to the scarcity of labor. It’s just tougher and tougher for employers to find people.

“We had some knee-jerk reaction to the data. Bond yields are going back up after a brief drop. I think the number is not as weak as it initially looks. I think the economy is going to continue to be strong. There will be a slowing in growth from a blistering pace.

“This is not going to stop the Fed from hiking on Dec. 19th. I think they will raise raises two more times in 2019 to get closer to 3 percent and continue to normalize the balance sheet. By March, they will get the fourth-quarter GDP and we will probably get strong readings on year-end holiday spending. The wage growth number we are seeing should push up the CPI rate.”

BRUCE BITTLES, CHIEF INVESTMENT STRATEGIST, ROBERT W. BAIRD & CO, SARASOTA, FLORIDA:

“That number (155,000 jobs) is a favorable number for the markets. The fact we had a shortfall in the jobs that could be related to a lot of things, certainly what’s going on in California with the fires, but this will be well received by the markets as it’s another sign that the Fed could back pedal on raising rates.”

KEN POLCARI, MANAGING PRINCIPAL, BUTCHERJOSEPH ASSET MANAGEMENT, NEW YORK:

“What the market is expecting now is that the weaker jobs report we got today is going to further give Powell cover to go slower on his rate increases and what he might say next week after the Fed meeting. That’s why you’re seeing the market rallying.

“I don’t think the market’s going to rally 800 points but you’ll probably see a positive finish.”

SCOTT BROWN, CHIEF ECONOMIST AT RAYMOND JAMES IN ST. PETERSBURG, FLORIDA:

“The headline payroll number was a bit disappointing but it’s not a big miss relative to expectations. It wasn’t a really strong report. It is still consistent with the Fed raising short term interest rates, but I think the main theme here is that investors are expecting the Fed to be even more gradual, a little bit more cautious in raising interest rates in 2019.

“The futures are still down but not down quite as much. Obviously there are a lot of things going on besides the short term job numbers. I still think you have that sense of anxiety. We are going to see continued volatility depending on the news we get on trade policy over the next couple of weeks.

“Particularly this time of the year you look for retail and couriers numbers which was pretty good, stronger than recent years. That suggests it’s going to be a good holiday shopping season.

“Wage numbers were little bit less than anticipated but still the trend is higher. Doesn’t suggest that the Fed needs to slam on the brakes here and its consistent with the theme that the Fed will be more cautious in raising interest rates next year.”

MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ, NEWPORT BEACH, CALIFORNIA:

“In terms of a snapshot for the economy, and while somewhat softer than consensus expectations, this is a solid November jobs report that goes counter to talk of recession.

“Encouragingly, wage growth continues just above 3 percent and job creation is averaging 170,000 over the last three months. As regards to longer-term issues, the rather sluggish labor participation rate remains a concern suggesting skill mismatches is an issue.

“The report is not soft enough to deter a December rate hike but it will contribute to a downward revision in central bankers’ policy guidance for rate hikes in 2019.”

SUBADRA RAJAPPA, HEAD OF U.S. RATES STRATEGY, SOCIETE GENERALE, NEW YORK:

“This is kind of what I was expecting in the sense that there was some asymmetry in market reaction, ie if there was a strong number the market would discount it, but a weak number, or even a slight miss in the headline, is going to be perceived as a weakness and a rally in bonds, so that’s kind of the market reaction we’re seeing post payrolls.

“The number itself is pretty much in line with past prints, 155,000 I don’t see as a huge miss, it’s below consensus. It’s still overall a very good number and it reaffirms the trajectory we’ve experienced in 2018, so it shouldn’t really have an outsized impact either on broader markets or even the cash markets. I think this is probably just a knee-jerk reaction after the headline print.”

“To me this is a status quo number, I wouldn’t read this as the Fed should be slowing down next year. There might be a lot of other reasons why we might consider a pause in 2019, but I just don’t see today’s data as being a catalyst for that.”