INSTANT VIEW 4-U.S. payrolls shrink again, Fed expands auctions

NEW YORK (Reuters) - U.S. employers cut payrolls for a second straight month during February, slashing 63,000 jobs for the biggest monthly job decline in nearly five years as the labor market weakened steadily, a government report on Friday showed.

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TERM AUCTION FACILITY:

The U.S. Federal Reserve on Friday announced measures to ease liquidity pressures in stressed financial markets.

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KEY POINTS:

PAYROLLS: * The Labor Department revised January's jobs loss to 22,000 in from the 17,000 originally reported. It also said only 41,000 jobs were created in December, half the 82,000 originally reported. * The back-to-back January and February job losses were the first consecutive monthly declines since May and June of 2003. * The unemployment rate eased to 4.8 percent from 4.9 percent in January, but that was because fewer people were in the labor force. The department said the number of people in the workforce fell by 450,000 in February. * Economists surveyed by Reuters forecast 25,000 jobs would be added to payrolls last month. They had forecast that the unemployment rate would edge up to 5.0 percent. * Job losses were widespread. Some 52,000 jobs were lost in the manufacturing industries, the largest decline since July 2003 when 92,000 jobs were cut. Construction businesses eliminated another 39,000 jobs on top of 25,000 that were cut in January, a reflection of the housing industry's deepening woes.

TERM AUCTION FACILITY: * The Fed said it would increase amounts in its Term Auction Facility auctions March 10 and March 24 to $50 billion each, a rise of $20 billion from the amounts announced for each of these auctions. * The Fed also said it would initiate a series of term repurchase transactions that are expected to cumulate to $100 billion.

COMMENTS:

ADAM FAZIO, SENIOR CURRENCY STRATEGIST, CIBC WORLD MARKETS;

NEW YORK:

"This raises dramatically the chances of an inter-meeting rate cut . Already futures have moved to price in a more than 75 basis points cut and now it's looking at easing of a full percentage point. This just reinforces the trend that we have already seen. Euro has moved to an all-time high for two straight sessions and it's not even 9:00 am yet. Dollar/yen could threaten 100. Even the pound, sick as it is, is above $2.02. So the prognosis is sell dollars and buy gold as a hedge."

IAN SHEPHERDSON, CHIEF U.S. ECONOMIST, HIGH FREQUENCY

ECONOMICS, VALHALLA, NEW YORK:

PAYROLLS: "Grim, and note there was a net -46,000 revision to the previous three months."

"Private payrolls tanked 101,000 the third straight dip and the worst performance since March 2003, during the war in Iraq."

"In mitigation, weather effects seem to have accounted for perhaps more than 100,000 of this, but the underlying trends are horrible, with worse to come. The Fed has to ease much more."

STEVE VAN ORDER, FIXED INCOME STRATEGIST, CALVERT ASSET

MANAGEMENT CO., BETHESDA, MARYLAND:

PAYROLLS: "Sentiment (already) was that payrolls was going to be a bad report, but Treasuries have rallied a bit since.

TAF: "On the Fed, the (TAF) increase isn't as much as it might seem as first. It's a step in the right direction, but maybe not as much as meets the eye. Since the ECB and the Swiss National Bank dropped out, there has been more funding pressure."

"Libor is probably stickier than they want it to be right now."

JANE CARON, CHIEF ECONOMIC STRATEGIST, DWIGHT ASSET

MANAGEMENT, BURLINGTON, VERMONT:

PAYROLLS: "This employment report removes all doubt that the economy has slipped into a recession. The improvement in the unemployment rate offers no solace because the decline was the result of 450,000 people dropping out of the labor force compared to the 255,000 decline in household employment.

"Treasuries rallied in reaction to these data though the 10-year Treasury yield was having some difficulty breaking below the psychological support level of 3.5 percent."

TAF: "It's important that the Fed took steps to ease liquidity pressures since money markets are clearly suffering another bout of turmoil. This action will probably quiet rumors of a monetary policy easing taking place today."

CAMILLA SUTTON, CURRENCY STRATEGIST, SCOTIA CAPITAL,

TORONTO:

TAF: "They obviously needed to do something so they have tried to relieve some of the liquidity concerns and made it clear they are talking the global central banks. I think it's a good thing but there are a lot of problems in the market and it seems unlikely the Fed alone will be able to solve them."

TOM SOWANICK, CHIEF INVESTMENT OFFICER, CLEARBROOK

FINANCIAL LLC, PRINCETON, NEW JERSEY:

PAYROLLS: "There is nothing good in this report today. Even the revisions are going in the wrong direction. There should be no doubt as to whether the Fed moves next week, only question is whether they will go 50, 75 or 100 as some have suggested. Increase in the TAF loans suggests no. 1, banks are using the program and no. 2, banks need the loans."

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM,

BEDMINSTER, NEW YORK:

TAF: "The move may bring some stabilization to otherwise deteriorating credit markets, but I tend to think the move is not enough to overcome the sense of desperation out there. Keep an eye on how the financial stocks perform to gauge the reaction of this news."

BORIS SCHLOSSBERG, SENIOR CURRENCY STRATEGIST, DAILYFX.COM,

NEW YORK:

PAYROLLS: "It's as ugly as everybody thought it would be. But I think the euro's been so overbought that I wonder how much more fuel it has. It's possible people will try to take it up to 1.55 and test option barriers there. But pullbacks will be shallow, as the dollar is weak across the board. It's approaching parity with the Swiss franc.

The data seals the deal for the Fed to cut by at least 50 basis points and it weighs on the idea of consumer spending rebounding. With the rise in energy and food prices, the consumer is under a lot of stress. And two consecutive months of negative payrolls suggests we are in a recession. The bears have a much stronger argument than the bulls right now."

DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR'S, NEW YORK

TAF: "I don't know what the issue is because the announcement of the TAF was scheduled for today. It's an increase, but not out of line with what people were expecting... The Fed always does repos. What they're doing is more term-repos because they're worried about getting more liquidity in at the long end... I think the market overreacted (at first) on the positive side because it shouldn't have been a big deal."

PAYROLLS: "Not good. Negative 63,000 is certainly a rotten month. On the positive side the unemployment rate actually dropped instead of going up... that's certainly good news on the unemployment front, but the fact is we have two months in a row of declining, that's a further sign that we're in a recession now.

"We still have a serious liquidity crisis for the financial markets. It's difficult and expense to borrow, unless you're a real prime borrower. And the economy, the U.S. looks like it's in recession, and we're seeing significant slowdowns in both Europe and Japan. The overall picture is not a disaster but financial markets are being locked up, and the real economy is being affected by it.

"My view is we're well into recession and we'll probably be in it for several months."