U.S. employment growth ground to a halt in June, with employers hiring the fewest number of workers in nine months, dampening hopes the economy was on the cusp of regaining momentum after stumbling in recent months.

KEY POINTS: * Nonfarm payrolls rose only 18,000, the weakest reading since September, the Labor Department said on Friday, well below economists' expectations for a 90,000 rise. * Many economists raised their forecasts on Thursday after a stronger-than-expected reading on U.S. private hiring from payrolls processor ADP, and they expected gains of anywhere between 125,000 and 175,000. The unemployment rate climbed to 9.2 percent, the highest since December, from 9.1 percent in May.

COMMENTS:

MICHAEL MARRALE, MANAGING DIRECTOR AND HEAD OF SALES TRADING, RBC CAPITAL MARKETS, NEW YORK:

Very disappointing following the ADP number obviously and especially in light of the fact there was some short covering ahead of this number with some obvious fear on behalf of the shorts the number would be much better-than-expected. The whisper number kept creeping up over the course of the night and we were hearing from our European desk that the expectation had crept over 150,000. So very disappointing and more from a positioning standpoint where some shorts had thrown in the towel over the last several days and especially yesterday. I would expect them to re-engage on the back of this number. We've just about given back yesterday's rally. This will really give the shorts some teeth in terms of re-engaging.

SHAUN OSBORNE, SENIOR CURRENCY STRATEGIST, TD SECURITIES, TORONTO:

The number stinks. There were a couple of head fakes with ADP and the news that (President) Obama was going to make a statement, which led people to believe we would get a stronger number. But the dollar is rallying, so I think the key here is that this is a risk-off sort of reaction. We had equity markets already weak in Europe. We've seen support for euro/dollar around 1.42. Technically it should go lower, and I think it will. A lot will depend on how equities trade throughout the day.

VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

The reluctance of private-sector employers to create jobs in June, in conjunction with the continued downward trend relating to government employment, essentially created a flat jobs market last month, with only 18,000 additional jobs created in the non-farm sector. This sharply contrasts with an earlier estimate of employment (ADP nonfarm up 157k) as well as recently updated forecasts (market 90k) seeking a figure that would confirm a rebound from May's originally weak report of 54k jobs created. The only confirmation this report gives, is the affirmation that the economy's recovery is far from steadily improving -- especially when considering that the employment rate rose (for the third month) to 9.2% (with droves leaving the labor force 449k).

June's payroll is not the result of cut-throat downsizing (only three private sectors contracted), but is more so a situation of stalled hiring. The private sector added 57k jobs to the market, led by a 53k gain in services. Goods producing jobs inched up 4k and were held back by a 9k drop in construction. As expected, financial services lost 15k jobs (after May's gain of 14k).

Unexpected, and even more so unwelcome, temp jobs fell by 12K after May's fall of 1.7k. Given that temp jobs lead permanent hiring, this recent string of declines does not give the indication of employers construing plans to hire. Government jobs were reduced by 39k, which is similar to the 48k in May.

JOHN CANALLY, ECONOMIST AND INVESTMENT STRATEGIST, LPL FINANCIAL, BOSTON

You don't want to read too much into one report. The economy has been through this soft spot and apparently people thought it was over yesterday with the ADP but it wasn't over in June. So you have to wait until July when you get a big rebound in auto production.

I think you probably go back and retest the low end of the recent range in Treasuries. Next week you have inflation data, but you also have manufacturing data--you're going to find out next week if we're getting the rebound in July everyone thought would happen.

People were bracing for a strong number, got a weak one, and that's usually bad news for stocks and good news for Treasuries.

MARKET REACTION: STOCKS: U.S. stock index futures fell sharply BONDS: U.S. bond prices rose FOREX: The dollar rose against the euro

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