Private sector employment rose slightly more than expected in July, easing some concerns about labor market weakness ahead of a key government jobs report later this week.

Private employers added 42,000 jobs in July, compared with a revised gain of 19,000 in June, the report by a payrolls processor ADP Employer Services showed on Wednesday.

The rise in hiring was slightly higher than an estimate from economists surveyed by Reuters for a gain of 40,000 private-sector jobs. The June ADP figure originally was reported as a gain of 13,000 jobs.

However, while above market expectations the gains still show the economy has not gained the job-creating momentum to pull the unemployment rate down from above nine percent.

The fact that it was better than expected is a good sign, but it's more of the same of what we're seeing in the jobs market. The recovery remains slow, and its something that's going to take longer to play out, said Michael O'Rourke, chief market strategist at BTIG LLC in New York.

U.S. stock futures added to gains following the private sector jobs data, while longer-dated U.S. Treasury debt prices briefly pared gains and the U.S. dollar pared losses against the yen.

Employment levels are considered key to a pickup in consumer spending and to boosting overall U.S. economic growth which has shown signs of weakness in recent months. Data last Friday showed U.S. economic growth slowed in the second quarter of this year.

Economists sometimes use the ADP report to narrow down their estimates for the U.S. Labor Department's payrolls numbers due Friday, but it is not always accurate in predicting the outcome.

DISMISSALS AND DISTORTIONS

That report is expected to show non-farm payrolls fell by 65,000 in July after declining by 125,000 in June as temporary workers hired to conduct the decennial census were dismissed. Private-sector payrolls are seen rising a modest 90,000 in Friday's data and the unemployment rate is expected to climb to 9.6 percent.

Given the distortions produced by the census, many economists are looking more closely at the private sector gauge in the non-farm payrolls report.

However, the ADP report may suggest that this will under-perform expectations.

I'm looking for a modest increase of 30,000 to 40,000 in private sector hiring to be reported...on Friday, said Macroeconomic Advisers LLC chairman Joel Prakken, whose firm jointly developed the ADP Employer Services report on private sector employment.

I expect somewhere between 50,000 and 100,000 census workers to have been let go and that will be enough to make the number on Friday negative.

A weak report on Friday could also increase speculation that the Federal Reserve will delve into possible ways to lower borrowing costs throughout the economy at next week's policy meeting.

There has already been speculation in the bond market that the U.S. central bank might consider buying Treasury debt in a return to its recent quantitative easing campaign of asset purchases.

A separate report on Wednesday showed the number of planned layoffs at U.S. firms rose 6.0 percent in July, marking the third straight month of increased layoffs, though downsizing activity appears to be slowing.

Employers announced 41,676 planned job cuts last month, up from 39,358 in June, according to the report from global outplacement consultancy Challenger, Gray & Christmas, Inc.

(Additional reporting by Burton Frierson, Edith Honan and Ryan Vlastelica)

Unemployment