U.S. employers cut a smaller than expected 36,000 jobs in February, leaving the unemployment rate steady at 9.7 percent, bolstering views the labor market was on the brink of creating jobs.

The Labor Department said on Friday it was unclear how the severe snowstorms, which hit much of the country last month, had impacted payrolls. Jobs losses for December and January were revised to show 35,000 fewer jobs lost than previously reported.

Analysts polled by Reuters had expected non-farm payrolls to drop 50,000 last month and the unemployment rate to edge up to 9.8 percent. The median forecast from the 20 most accurate forecasters also saw payrolls falling by 50,000, while the 10 most accurate economists predicted a 70,000 decline.

This is encouraging news, indicating the recovery is still on track, said Gary Thayer, chief macrostrategist at Wells Fargo Advisors in St. Louis.

U.S. stock index futures rallied, while yields on government debt rose. The U.S. dollar rose against the euro.

Traders bet the stronger-than-expected number might encourage the Federal Reserve to begin lifting short term interest rates from near zero later this year. Trading in U.S. short-term interest rate futures after the data was published showed investors thought the central bank would hike its benchmark interest rate by November.

The emergency interest rate level is no longer warranted either for the markets or the economy, said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi in New York.

The Fed is going to take out the scissors to its press statement. They will no longer be telling the global markets on March 16 that exceptionally low rates are needed for an extended period, he added, referring to the Fed's next policy-setting meeting.

Half of the job losses came from government workers, but that category is expected to see huge gains in the coming months as more workers are hired for the once-a-decade U.S. census. In February, 15,000 temporary census workers were hired.

Analysts had feared that the heavy snowstorms that hit large areas of the United States during the survey week for the employment report would cause a huge drop in payrolls.

However, the department said while the winter storms might have affected its employment count, it was difficult to quantify the net impact.

Nor do we know how new hiring or separations were affected by the weather. For those reasons, we cannot say how much February's payroll employment was affected by the severe weather, said Bureau of Labor Statistics Commissioner Keith Hall.

The department noted that not every closure or temporary absence causes a drop in employment, because workers are counted as employed if they receive any pay during the survey period, even if it is for just an hour.

Moreover, it was unclear how many workers may have been added to payrolls in February for snow removal or repairs related to the storm, it said.

Unemployment is one of the toughest challenges facing President Barack Obama, whose approval ratings have dropped.

Obama and fellow Democrats worry voters could punish them in November congressional elections if no progress is made in putting Americans back to work as the economy emerges from its worst downturn since the 1930s.

Since the start of the recession, 8.36 million jobs have been lost. The labor market has been gradually improving and the pace of layoffs has slowed markedly from early 2009 when the economy was losing 750,000 jobs on average a month.

Manufacturing added 1,000 jobs in February, but construction payrolls fell 64,000 jobs. Temporary hiring added 48,000.

The average workweek for all employees slipped to 33.8 hours from 33.9 hours in January.

Job growth is crucial for the sustainability of the economic recovery that started in the second half of 2009.

Analysts worry that tepid consumer spending could result in the economy's growth sputtering when the impact of government stimulus and the rebuilding of inventories by businesses fades later this year.

(Additional reporting by Ellen Freilich in New York; Editing by Andrea Ricci)

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