Surge in temp jobs points to stronger U.S. economy

* Temp payrolls add about 34,000 jobs in October

* U.S. unemployment rate tops 10 pct

By Helen Chernikoff

NEW YORK, Nov 6 (Reuters) - U.S. temporary staffing -- historically one of the first areas to show evidence of a jobs recovery -- surged in October, adding about 34,000 jobs in a positive sign for the overall economy even as the overall employment rate rose above 10 percent.

Unemployment rose to 10.2 percent in October from 9.8 percent in September, but the spike in temporary help payrolls is reason for optimism, said Scot Melland, chief executive of Dice Holdings Inc (DHX.N), which operates Web-based job boards.

"Psychologically, this is a tough one," Melland said. "But if companies are increasing their use of temporary services, that is a good sign for the coming months."

Zurich-based Adecco SA (ADEN.VX), the world's largest staffing company, also said on Nov. 5 that a pickup in demand for temporary workers in its third quarter points to a broader economic recovery in the offing.

Dice Holdings saw a third-quarter increase in technology and engineering employers searching its resume database, in addition to a spike in the number of job postings in the New York and Silicon Valley tech markets, Melland said.

Despite the surge in temporary hiring, the economy lost 190,000 jobs in October, driving the unemployment rate to its highest level since April 1983.

"Unfortunately, we're still shedding jobs," Melland said. "We've crossed the 10 percent barrier, which we've only crossed a few times in history. That shows how difficult the situation is."

Another area of strength was manufacturing and logistics, said Roy Krause, head of Spherion Corp (SFN.N), one of the largest U.S. temporary staffing companies.

An increase in industrial staffing tends to be a leading indicator of better times, Krause said, because it means companies are building inventory for sale, which tends to precede hiring for call centers or administration.

"Maybe July, August, September really was the bottom," Krause said. "If we can sustain the growth of temporary numbers, we should see the negative change in job numbers get smaller and eventually turn positive." (Reporting by Helen Chernikoff; Editing by Gary Hill)