UPDATE 1-Traders pare rate-hike bets after weak jobs data

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By Richard Leong

NEW YORK, Nov 6 (Reuters) - Traders reduced their bets on Friday the Federal Reserve will raise interest rates by the middle of 2010 after a weaker-than-expected payroll report rekindled worries about the pace of an economic recovery.

This surprisingly weak snapshot on U.S. employment fanned the likelihood that the Federal Reserve will stick to its near zero rate policy well into 2010 in an effort to keep a recovery intact. For more on U.S. payrolls report see [ID:nOAT004347]

The U.S. jobless rate jumped to 10.2 percent, matching its highest level since April 1983, while U.S. employers axed a steeper-than-expected 190,000 jobs last month, the government reported on Friday. For more, see [ID:nOAT004347]

Companies have refrained from beefing up staff despite evidence of improving demand for goods and services worldwide. This reticence to hire will forestall job growth, posing a drag on consumer spending -- which accounts for 70 percent of the U.S. economy, analysts said.

"Companies continue to push their labor forces harder, without backfilling positions to help with the workload. In addition, people are not spending money -- a significant negative effect on the bottom line, as well as the U.S. economy," said Todd Schoenberger, managing director with LandColt Trading LLC in San Antonio, Texas.

Futures on federal funds, or banks' overnight lending of their excess reserves which the Fed targets, hit contract highs immediately after the October jobs data.

Federal funds futures for July 2010 delivery FFMO were up as much as 5 ticks at 99.59.

This suggested traders reduced their bets the Fed will begin raising rates in the middle of next year. The implied chances of the Fed's first rate hike by mid-2010 slipped to about 66 percent from 84 percent late on Thursday. (Editing by Chizu Nomiyama )