INSTANT VIEW: September payrolls show steepest fall in 5 1/2 yrs

NEW YORK (Reuters) - U.S. employers cut payrolls at the steepest rate in 5-1/2 years during September, slashing an unexpectedly large 159,000 nonfarm jobs as employment contracted for a ninth straight month.

KEY POINTS: * The unemployment rate was unchanged from August at 6.1 percent. * September's job losses were more severe than predicted by Wall Street economists surveyed by Reuters, who had forecast 100,000 jobs would be cut. * The report likely will ratchet up pressure on members of the U.S. House of Representatives to vote for a $700-billion rescue package for banks and other financial firms burdened by bad mortgage-related assets, which is contributing to a spreading credit crunch. * September's cuts follow revised losses of 73,000 jobs in August and 67,000 in July and show the decline in employment is accelerating. Some 51,000 manufacturing jobs were lost last month on top of 56,000 cut in August, the 27th straight month in which manufacturers slashed their payrolls.

COMMENTS:

RAVIN JESUTHASEN, MANAGING PRINCIPAL, TOWERS PERRIN, CHICAGO:

"Given the squeeze in cash and the tightness in credit, many organizations will step back and think about how to best staff their organizations in the short-term and long-term.

"Short-term financing will trickle into whether to support the workforce and how they will execute their long-term strategies.

"Further layoffs will be sector specific. Organizations will be looking at who's key to their business today and pivotal to it in three to five years.

"There are still shortages in leadership talents and industries such as healthcare.

"We are seeing a lot organizations concerned about their staffing levels, but some see this environment to upgrade their talent pools."

IAN SHEPHERDSON, CHIEF U.S. ECONOMIST, HIGH FREQUENCY ECONOMICS, VALHALLA, NEW YORK:

"The U.S. economy is shrinking, and there will be many more awful reports like this. Payrolls were weak everywhere except in government and education; the big change is in services, down a huge 82,000, way below the -15,000 prior trend... The Fed has more to do, 50 basis points ease On October 29 or sooner."

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY:

"U.S. non-farm payrolls are slightly worse than expected, with a net revision to prior months... along with the unemployment rate holding steady -- which somewhat mitigated the weakness. The market is not showing any sign yet of abandoning the strong U.S. dollar theme of the week, but I remain optimistic that we will get a TARP passage, ugly as it may be and the market will embrace risk as an antidote to fear."

SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR & ASSOCIATES, TORONTO:

"The jobless rate of 6.1 percent, means to me that from a stock market perspective, consumers are unlikely to be early leaders in this market. The key is to stabilize the financial sector. I think financials will provide direction for the stock market.

"Having said that, I'm at about 1100 for the S&P. I'm looking for a more mild decline than the decline in 2000-2001. Less than that, but more than we currently see. High volatility remains, and the (jobs) numbers will contribute to high volatility, even if the market doesn't move today. Today, the focus will be on the economic numbers, not the financials. Financials are stabilizing somewhat. The weaker ones will go into liquidation but the stronger ones are stabilizing. I think today, the markets will react to the economy overall."