WRAPUP 3-US job losses spike in June, dampen recovery hopes

* Drop in non-farm payrolls much larger than expected

* Jobless rate hits 9.5 percent, highest since August 1983

* But weekly jobless benefits claims fall in hopeful sign

* May factory orders rise more than expected (Recasts, adds details, analyst comments, updates markets)

By David Lawder

WASHINGTON, July 2 (Reuters) - U.S. employers cut far more jobs than expected last month and the unemployment rate hit 9.5 percent, the highest in nearly 26 years, underscoring the likelihood of a long, slow recovery from recession.

The loss of 467,000 jobs reported by the Labor Department on Thursday was 100,000 more than Wall Street economists had expected, with virtually no sector of the economy spared.

Since the economy fell into recession in December 2007, 6.5 million nonfarm jobs have been lost and the unemployment rate has nearly doubled.

"It looks like the economy was still losing substantial momentum as the second quarter came to a close. This report is weak across the board," said William Sullivan, chief economist at the JVB Financial Group in Boca Raton, Florida.

U.S. stock prices fell, with the Dow Jones industrial average .DJI down 2 percent by afternoon as investors worried the data darkened the recovery outlook. Prices for safe-haven U.S. government debt rose.

The rise in the U.S. jobless rate from May's 9.4 percent took it to its highest level since August 1983. In a further indication of weakness, the report showed the length of the average workweek shrunk and wages were flat last month.

"The labor market is still in shambles," said economist Harm Bandholz of Unicredit Markets & Investment Banking in New York.

U.S. businesses have slashed payrolls sharply in an effort to protect their bottom line in the face of a plunge in consumer demand. Now, the deteriorating jobs market poses the biggest hurdle to a recovery many economists expect to take root this quarter.

Data in Europe on Thursday also showed unemployment in the 16-nation euro zone rose to a 10-year high of 9.5 percent in May, adding to concerns about demand for U.S. exports.

Monthly U.S. job losses peaked in January at 741,000 and had decreased each month since then until June, an indication that the pace of the economy's deterioration had been slowing. May jobs data had been particularly encouraging to investors.

The Labor Department revised figures for April and May to show a net 8,000 fewer jobs were lost in those months than previously reported. The May job losses were revised downward to 322,000, while April losses were revised upward to 519,000.