The U.S. economy probably recorded a second month of solid job gains in November, which would bolster views the labor market is improving even though the activity is not enough yet to lower the unemployment rate.

Nonfarm payrolls likely rose 140,000, with private hiring increasing by more than 100,000 for a fifth straight month in November, according to a Reuters survey. The unemployment rate is forecast to have held steady at 9.6 percent.

Economists said there was a chance payrolls could surprise on the upside, citing a resurgence in retail hiring after a two-year slump. In October, U.S. employment increased by 153,000.

The Labor Department will release its closely watched monthly report on jobs at 8:30 a.m. ET.

There is a lot of optimism that the economy is on the rebound and definitely has turned around, said Barbara Byrne Denham, chief economist of Eastern Consolidated in New York.

A second month of strong employment gains coming on the heels of reports indicating a pick-up in demand could shore up perceptions the economy's recovery from the worst recession since the 1930s is becoming self-sustaining.

That shift began to shape up in the third quarter as consumer spending's contribution to growth eclipsed the rebuilding of inventories. Consumer spending typically accounts for about two-thirds of U.S. economic activity.

But unemployment is seen remaining stuck at 9.6 percent for a fourth straight month in November because, with conditions in the jobs market improving, some discouraged workers probably rejoined the labor force.

Employment has increased by about 874,000 since December 2009, a tiny fraction of the over 8 million jobs lost during the recession.

Analysts believe that gap would compel the Federal Reserve to fully implement its controversial $600 billion program to buy government bonds. The purchases are designed to push already low interest rates down further to stimulate demand.

Concerns about joblessness and low inflation led to the U.S. central bank's decision last month to launch its now much-criticized second round of quantitative easing, as QE2 is known in financial markets.

QE2 HERE TO STAY

We need to create 150,000 to 250,000 jobs consistently over a number of years before the unemployment rate can come down, said John Canally, an economist at LPL Financial in Boston.

So even if we get a blow-out number of 300,000 in November and it increases calls for the Fed to stop QE2, they will want to see that over a number of months.

Fed officials are not the only ones worried about unemployment. The health of the labor market could determine whether President Barack Obama gets a second term in office in 2012.

Disgruntlement over joblessness cost the Democratic Party control of the House of Representatives in last month's midterm elections, setting the stage for a battle over economic policy with Republicans.

The anticipated gains in employment in November were likely across the board, with the exception of government, where payrolls are expected to have fallen by at least 10,000 as state and local authorities continue to struggle with budget problems.

Employment in the goods-producing sector probably increased for a second month, supported by an expected rebound in manufacturing payrolls, after declining for three straight months. Construction payrolls likely rose again after a surprise increase in October, despite housing remaining weak.

Employment in the private service-providing sector is expected to have accelerated in November, reflecting strong gains in retail hiring in anticipation of a busy holiday season. That should boost temporary help services hiring.

Data Thursday showed retailers recorded their best sales gains in four years in November as shoppers were drawn in by deals throughout a month that culminated with a surge in traffic on Black Friday, the kick-off to the holiday shopping season.

There is some upside risk to the employment number because hiring trends in the retail sector have picked up after two very weak years. We may see some surprising gains in retail hiring, said Mark Vitner, a senior economist at Well Fargo Securities in Charlotte, North Carolina.

The work week likely held steady at 34.3 hours, but average hourly earnings are expected to have increased in November after rising by 7 cents the prior month. This should help support further gains in the consumer spending that drives about 70 percent of U.S. economic activity.

(Reporting by Lucia Mutikani; Editing by Leslie Adler)

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