* Private sector added 119,000 jobs in April
* Job creation falls well below expectations
* Factory orders fell 1.5 percent in March
* Mortgage purchase applications rose last week
By Leah Schnurr
NEW YORK, May 2 (Reuters) - U.S. companies hired the fewest people in seven months in April, a worrisome sign for a labor market that has struggled to gain traction and adding to concerns that the economy has lost some momentum.
The ADP National Employment Report on Wednesday showed the private sector added 119,000 jobs last month, below economists' expectations for a gain of 177,000 jobs. The March figure was also revised lower.
The report comes two days before the government's broader and much-watched monthly jobs report.
"This is an upsetting report," said David Carter, chief investment officer at Lenox Advisors in New York.
"The strength of the U.S. economic rebound is clearly still uncertain. Hopefully we don't get a third consecutive summer of weaker growth."
Recent data, including softer labor market figures, have fueled fears that the economy may have lost some strength as the second quarter got under way. Those worries were partly offset by data from an industry group on Tuesday that showed a better-than-expected pick-up in the manufacturing sector last month.
But government data on Wednesday showed new orders for factory goods suffered their biggest decline in three years in March as demand for transportation equipment and a range of other goods dried up.
Growth in the U.S. economy has been seen as increasingly important to offset slack elsewhere in the world. The euro zone on Wednesday reported another contraction in its factory sector.
In China, factory activity contracted again in April, although at a slower rate, hinting at stabilization in the world's second-largest economy.
The day's data helped take U.S. stocks down about 0.5 percent in midday trading, while Treasuries prices rose and the euro fell against the dollar.
But despite the weak numbers in the ADP report on private-sector hiring, some analysts and economists were cautious on whether the data indicates a trend in the labor market.
Joel Prakken at Macroeconomic Advisers LLC, which jointly develops the employment report with payrolls processor ADP, said the unusually warm winter months were partly to blame for the weakness in ADP report as employers had moved their hiring up to earlier in the year.
The evidence suggests private-sector employment was boosted by as much as 70,000 in the winter months, Prakken said.
"It does play into this notion that the numbers over the winter ... probably weren't quite as strong as the reports indicated, and this number today probably is not as soft as it appears on the surface," Prakken said on a conference call with journalists.
The manufacturing sector shed 5,000 jobs, the first loss since September of last year, the report showed. That was in contrast to data on Tuesday that showed a gauge of employment in the sector rose to its highest level since last June.
The U.S. Labor Department's report on Friday on nonfarm payrolls is expected to show hiring rebounded last month with 170,000 new jobs, an improvement from a meager 120,000 in March. Private payrolls are seen rising by 175,000.
Jonathan Basile, director of economics at Credit Suisse, said Wednesday's release did not change his forecast for a gain of 150,000 in Friday's jobs data, noting ADP has had a mixed record as an indicator of the payrolls numbers.
"For what it's worth, the first print of ADP ... has had some big misses in recent months in either direction compared to the first print of private payrolls. For instance, ADP overshot by 88,000 in March, undershot by 87,000 in January and overshot by 113,000 in December," Basile said in a note.
Boris Schlossberg, director of FX research at broker firm GFT, said he was watching more closely for the employment reading in the U.S. Institute for Supply Management's survey of the services sector, due out on Thursday, which he said was a better forecaster for the payrolls report.
In other data on Wednesday, the Commerce Department said orders for manufactured goods dropped 1.5 percent after a revised 1.1 percent rise in February.
On the housing front, applications for U.S. home mortgage purchases rose for a second week in a row, though demand for refinancing slipped as interest rates edged up, an industry group reported.
Markets have been speculating whether the Federal Reserve will embark on a third round of bond buying, or quantitative easing, to drive down long-term interest rates and help bolster the economy. Fed Chairman Ben Bernanke last month said monetary policy was appropriate, though he said the U.S. central bank would not hesitate to launch another round of asset purchases if the economy were to weaken.
Comments from several top Fed officials on Tuesday reinforced the picture that the central bank is happy to stand pat for now. The Fed has held interest rates at near-zero since late 2008 and has purchased more than $2 trillion in long-term securities.
Still, the Fed's concern about the high unemployment rate means investors will be watching the jobs number on Friday for clues on whether more bond buying - known as QE III - is in the cards.
"Any disappointment over Friday's non-farm payrolls will take us one step closer to QE III this summer, with the likelihood already at over 50 percent that Bernanke pulls the trigger by U.S. Labor Day," in early September, Michael Woolfolk, senior forex strategist with BNY Mellon, wrote in a note.