The U.S. economy likely shed a further 355,000 jobs in June and the unemployment rate hit a 26-year high, but for a nation mired in its deepest recession since at least World War Two that may be good news.

The U.S. Labor Department's report due on Thursday is expected to depict an economy still wallowing in recession but confirm that the pace of job loss has slowed, which would suggest the 18-month-old recession is easing its grip.

Hopefully we now see the light at the end of the tunnel, and of course when you see the light at the end of the tunnel you still have a long way to get there, said Mark Vitner, senior economist at Wachovia in Charlotte, North Carolina.

The report, which will be dissected by financial markets for clues on the economy, is expected to show the unemployment rate rose to 9.6 percent -- its highest since June 1983 -- from 9.4 percent in May, according to a Reuters poll of economists.

It is also expected to show employers cut 355,000 non-farm jobs, according to the median forecast of 62 economists.

While still severe, that would be in line with the 345,000 positions eliminated in May and would reflect a sharp slowing in job losses for an economy that shed an average of 691,000 jobs a month in the first quarter.

Although employers will have shed workers for 18 straight months, the trend has been moderating since job losses totaled 741,000 in January.

The improvement should all come in the private sector. We expect to see government jobs declining, as temporary jobs related to the preparations for the 2010 Census begin to disappear, IHS Global Insight wrote in a note to clients.

The pace of job cuts in the hard-hit manufacturing sector likely slowed to 148,000 in June from a 156,000 loss the previous month, the Reuters poll found.

Auto layoffs should slow from May, which was exaggerated by Chrysler shutting down production, while job losses elsewhere should resume a trend for improvement, 4CAST wrote in its preview of the data.

If it comes in close to the median forecast, or if job losses are even smaller, the report will likely be viewed as the latest sign the recession, the longest since the Great Depression, was winding down.

Heartened by a spate of relatively upbeat reports, economists have become increasingly convinced the recession will lift in the second half of the year.

Last week, reports covering the month of May showed a stronger-than-expected rise in orders for U.S.-made durable goods, an increase in consumer spending and the second straight monthly rise in existing home sales.

However, individual job-loss forecasts among the economists surveyed varied widely. Some expected as many as 500,000 jobs were cut in June, while others thought as few as 200,000 positions would be lost.

Even if the economy is close to a turn, the unemployment rate is expected to continue to march higher, with many economists expecting it to peak around 10 percent.

I think it's pretty clear now that unemployment will end up going over 10 percent, President Barack Obama told reporters last week.

Since the start of the recession in December 2007, the economy had lost 6 million jobs through May and the jobless rate had increased by 4.5 percentage points.

Wage gains have weakened along with the labor market. Economists said they expect average hourly earnings rose just 0.1 percent in June, the same as in May. The length of the average workweek is expected to hold at 33.1 hours.

(Polling by Bangalore Polling Unit)

(Reporting by Nancy Waitz)

Wachovia Unemployment