Wall Street sees an 80 percent chance the Federal Reserve will intervene in the bond market to lower long-term interest rates, according to a Reuters poll, after a report showed the U.S. jobs crisis deepened in August.

The poll was conducted after a government report on Friday showed job growth fell to zero last month, which sparked a massive rally in longer-dated Treasuries as investors put money behind their expectations for Fed action.

Economists also reduced U.S. growth expectations and assigned an increasing probability to the central bank embarking on QE3, or another round of outright Treasuries purchases that expand the size of the Fed's portfolio of bonds.

Some even think the central bank's policy-setting Federal Open Market Committee could announce action at its September 20-21 meeting.

The recent economic data, including the August employment data, is not going to sit well with the FOMC and will provide support for the majority of policymakers who want policy to remain extraordinarily accommodative, said Thomas Simons, money market economist at Jefferies & Co in New York.

All of this increases our confidence in our expectation that the FOMC will decide to implement an extension of the Fed's securities portfolio at the September 20-21 FOMC meeting in an effort to flatten the yield curve, Simons said.

The median of forecasts from 16 of 20 primary dealers ascribed an 80 percent chance the Fed will pump money into the economy by selling shorter-dated Treasuries it holds and buy longer-dated bonds in the next six months.

Investors have already been discussing such a move, which they have dubbed Operation Twist.

The market's reaction was also clear, with shorter-dated Treasuries selling off and 30-year bonds posting the biggest single-day dip in yield in nearly a month.

Friday's payrolls report -- which showed the economy failed to create jobs for the first time in nearly a year -- added to recent evidence the United States could be headed back into recession.

Today's disappointing payroll results bolster the arguments of those FOMC members that have spoken in favor of additional accommodation. We continue to look for the Fed to extend the maturity of its $1.7 trillion Treasury portfolio as an initial easing step. The announcement of such a move is likely to come in the September 21 FOMC policy statement, said Dana Saporta, economist with Credit Suisse in New York.

Economists at primary dealers -- the 20 large financial institutions that do business directly with the Fed -- are also upping the chances the Fed will fire up a QE3 program to expand its balance sheet by buying longer-dated Treasuries on the open market.

The median of forecasts from 16 of the 20 primary dealers gives a 45 percent chance the Fed will do a QE3 program in the next six months. A similar poll on August 9 gave QE3 a 37.5 percent chance over the next six months.

We anticipated a recession even before the August payrolls, and the fact that the recent loss of confidence has already permeated into hiring decisions only reinforces that expectation, said Julia Coronado, economist North America at BNP Paribas in New York.

We don't think the Fed will hesitate to initiate QE3 at the September meeting and we believe an outright expansion of the balance sheet would be more effective than the duration extension currently under consideration. Julia Coronado, economist North America at BNP Paribas in New York.

In the most recent Fed expansion of its balance sheet, known as QE2, the central bank bought $600 billion of Treasuries in a program that wound up in June.

Economists are also scaling back their expectations for U.S. growth, with the median of forecasts from 15 primary dealers putting 2011 annualized gross domestic product at 1.6 percent year over year, down from 1.7 percent in the August 9 poll.

As a comparison, the government estimated gross domestic product grew by 3 percent in 2010.

The median of forecasts from 15 primary dealers was a 32.15 percent chance the United States will fall into another recession in the next year, up slightly from 30 percent in the August 9 poll.

(Additional reporting by Pam Niimi and Emily Flitter; Editing by Leslie Adler)

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