Job losses in the United States likely accelerated last month and the unemployment rate probably surged to a 25-year high as recession-hit companies took drastic steps to cut costs, according to economists.

They reckon that the U.S. economy, reeling from the worst financial crisis since the 1930s and stuck in recession since December 2007, will continue to bleed jobs well into the second half of next year, even as overall output begins to recover.

The Labor Department is scheduled to release its February non-farm payrolls report on Friday at 8:30 a.m.

A poll of 78 economists by Reuters produced a median forecast that employers outside the farm sector slashed 648,000 jobs in February after cutting 598,000 positions in January. Forecasts for February ranged from a loss of 800,000 jobs to a drop of 500,000.

Manufacturing payrolls were estimated to have shrunk by 195,000.

The survey predicted the unemployment rate would rise to 7.9 percent, which would be the highest level since January 1984. The U.S. jobless rate was 7.6 percent in January.

All the leading labor market indicators are pointing to a pretty sharp decline. Economic activity is declining at a pretty rapid rate, similar to what we saw in the fourth quarter of last year, said Bob DiClemente, chief economist at Citigroup in New York.

In the final three months of last year, the economy shrank at an annual rate of 6.2 percent, its sharpest contraction since the first quarter of 1982.

Companies are acting to reduce costs to protect themselves as the level of business activity declines and that has meant large widespread job losses. It's symptomatic of a very, very severe recession, DiClemente said.

BLEAK JOBS REPORT EXPECTED

Citigroup is forecasting a 700,000 reduction in employment in February. Data already released this week showed an employment gauge in the manufacturing sector tumbled to a record low in February, while private employers cut 697,000 jobs, pointing to a bleak report on Friday.

Escalating job losses as companies struggle with falling revenues and tight profit margins have dire consequences for households already experiencing an erosion of wealth from the collapse of house and stock values.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell at a 4.3 percent rate in the fourth quarter, the biggest drop since 1980.

Businesses are still in a mode of cutting costs and in some sectors, there is still some inventory overhang that is out there. They are trying to get ahead of the curve on that, said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts.

Even with the government's $787 billion package of spending and tax cuts, which are expected to breathe some life into the withering economy later this year, analysts said companies would continue to lay off workers and the jobless rate would likely peak around 9.5 percent in the first half of 2010.

We are going to have a very difficult 2009, said Joseph Brusuelas, an economist at Moody's Economy.com in West Chester, Pennsylvania.

The fiscal stimulus and the extraordinary accommodation will in the future stabilize the economy, but for that to occur, financial markets have to be functioning normally and credit has to be flowing, he said.

The Federal Reserve has cut its target fed funds rate for overnight borrowing costs to a range of zero to 0.25 percent and is buying securities and advancing loans in a bid to break the economy's downward spiral.

(Polling by Bangalore Polling Unit)

(Editing by Jan Paschal)

Unemployment Citigroup