U.S. employers cut 539,000 jobs last month, the fewest since October, according to government data on Friday that signaled the economy's steep decline may be easing.

The unemployment rate, however, soared to 8.9 percent, the highest since September 1983, from 8.5 percent in March and job losses in March and February were a combined 66,000 steeper than previously estimated, the Labor Department said.

A big 72,000 jump in government payrolls tempered the overall job-loss figure. Private sector employment fell by 611,000 in April after a 693,000 job decline in March.

Still, the data was not as bleak as financial markets had expected and it offered the freshest sign that the intensity of the recession was starting to fade. U.S. stocks rose at the open.

It's all going to add to the conviction that the economy is approaching bottom, said Pierre Ellis of Decision Economics in New York.

The payrolls reading, which beat market expectations for a 590,000 drop, and results of the government's tests on the health of domestic banks lifted U.S. stocks, with the blue chip Dow Jones industrial average gaining about 90 points in morning trade.

Government bond prices rose as investors remained focused on the fact that unemployment would continue to rise, even when the economy emerged from its recession, now in its 17th month.

In a hopeful glimmer, the rise in the unemployment rate reflected a surge in people joining the labor force, as opposed to a collapse in employment.

The labor market may have seen its worst months for job cuts. It will be a slow healing process, but improvement is expected to come by mid-year, said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.

WIDESPREAD JOB LOSSES

The report showed job losses across almost all sectors, although at a less steep pace than in the previous months.

The manufacturing sector lost 149,000 jobs in April, after shedding 167,000 the prior month. Construction industries cut 110,000 jobs after losing 135,000 in March.

The service-providing industry slashed 269,000 positions after eliminating 381,000 in March.

Payrolls in the education and health services sector increased by 15,000.

Since the start of the recession in December 2007, the economy has lost 5.7 million jobs, the department said.

The length of the average work week was unchanged at 33.2 hours in April. Average hourly earnings edged up to $18.51 from $18.50.

A separate report from the Commerce Department showed wholesale inventories dropped 1.6 percent to $411.7 billion, the lowest level since November 2007, after falling a record 1.7 percent in February.

That is potentially good news for the economy as it suggests manufacturers may need to start rebuilding stocks again soon, stimulating production.

(Additional reporting by Lisa Lambert in Washington and Ellen Freilich in New York; Editing by Andrea Ricci)

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