* Private payrolls rise 133,000 in May -ADP
* Jobless claims increase 10,000 last week
* Midwest business activity slows in May
* GDP revised down to 1.9 pct growth rate in Q1
WASHINGTON, May 31 (Reuters) - Private payroll growth picked up only slightly in May and claims for jobless benefits rose last week, suggesting the U.S. labor market recovery was losing steam after a strong performance early in the year.
Other data on Thursday showed factory activity in the Midwest slowed considerably in May and economic growth in the first quarter was a bit softer than initially estimated.
Economists said the reports reflected business anxiety amid an uncertain global economic outlook as the euro zone's debt crisis escalates and China's economy slows.
"The economy is growing at an anemic pace and the job market is showing some signs of hesitation in the pace of hiring. There is a lot to worry about," said Paul Edelstein, an economist at IHS Global Insight in Lexington, Massachusetts.
Private employers created 133,000 jobs in May, payrolls processor ADP said. That was only a slight step up from April's tepid increase of 113,000 and below economists' expectations for a gain of 148,000.
The report comes ahead of the government's closely watched employment report for May on Friday, which is expected to show nonfarm payrolls increased 150,000, up from a paltry 115,000 in April.
The recent cooling in the labor market has been largely viewed as payback for strong gains during the winter, when unusually warm weather spurred economic activity. But economists are starting to worry that the troubles in Europe and an uncertain fiscal outlook at home are now dampening the U.S. recovery.
Initial claims for state jobless benefits rose 10,000 last week to a seasonally adjusted 383,000, a Labor Department report showed. Claims have now risen in seven of the last eight weeks.
Another report from consultants Challenger, Gray & Christmas, Inc. showed the number of planned layoffs at U.S. companies hit an eight-month high in May as computer maker Hewlett-Packard said it would cut about 8 percent of its workforce.
Joel Prakken, chairman of forecasting firm Macroeconomic Advisers, which helps produce the ADP report, said the soft private-sector payroll gains of the past two months at least partially reflected the unusual weather patterns, but he said they also raised a red flag about fundamental weakness.
"Today's number both confirms and reinforces the deceleration of employment that we saw last month," he said. "While the deceleration is disappointing, it's hardly surprising, given the tepid macroeconomic data we have seen reported over the last several months."
The sluggish data and growing concerns over Europe's increasing credit problems weighed on U.S. stocks. In Thursday's session, all three major U.S. stock indexes ended the day with modest declines. The Standard & Poor's 500 index ended the month down 6.3 percent, its worst performance since September. The Dow Jones industrial average lost 6.2 percent in May and the Nasdaq Composite Index slid 7.2 percent - marking their biggest monthly declines in two years.
Prices of U.S. Treasury debt jumped on flight-to-safety bids, with the yield on the 10-year note dropping to a record low of 1.53 percent. The dollar was little changed against a basket of currencies.
A report from the Institute for Supply Management-Chicago found factory activity in the Midwest lost steam this month. The group said its business barometer fell to 52.7, the lowest since September 2009, from 56.2 in April. A reading above 50 indicates expansion in the regional economy.
Other regional surveys of factory activity also have found activity slowing, suggesting the manufacturing sector was losing a step nationally. The Institute for Supply Management will release a report on national factory activity for May on Friday.
Cary Leahey, a senior economist at Decision Economics in New York, said that based on historical relationships, the Midwest factory index suggested the national ISM reading could dip below the 50 mark within the next couple of months.
Separately, the Commerce Department said U.S. gross domestic product increased at a 1.9 percent annual rate in the first quarter, down from the 2.2 percent it had estimated last month.
The economy grew at a 3.0 percent rate in the fourth quarter.
Businesses restocked shelves more slowly than previously thought and government spending declined more sharply. There was also a modest downward revision to consumer spending, which accounts for about 70 percent of U.S. economic activity, and stronger import growth.
Business inventories added only 0.21 percentage point to GDP growth compared with a previously estimated 0.59 percentage point.
While the small inventory build-up held back growth in the January-March quarter, restocking of shelves, retreating gasoline prices and an improving housing market should provide a boost to output in the second quarter. Growth in the second quarter is currently estimated at a pace of about 2.5 percent.
U.S. retailers on Thursday reported stronger-than-expected sales for May as bargains helped shoppers overcome anxiety about the economy and job market, an encouraging sign for second-quarter GDP growth.
The GDP report also showed that after-tax corporate profits dropped for the first time in three years last quarter. The decline reflected the end of a special tax bonus that allowed U.S. companies to accelerate the depreciation of assets.