* Nonfarm payrolls seen rising 200,000 in March
* Unemployment rate expected to be steady at 7.7 percent
* Average hourly earnings expected to rise 0.2 percent
* Report to show economic recovery gaining traction
By Jason Lange
WASHINGTON, April 5 (Reuters) - American employers likely hired at a moderate pace in March, a sign the economy was gathering momentum even as Washington stepped up an austerity drive by enacting painful spending cuts.
The economy probably added 200,000 jobs last month, with the jobless rate steady at 7.7 percent, according to a Reuters survey of economists.
That would mark the fourth time in five months that nonfarm payrolls increased by least 200,000, a robust trend considering the drag on the economy from a January tax increase and federal budget cuts that began in March.
Indeed, with Europe bogged down in a sovereign debt crisis that has fueled record joblessness, the apparently resilient U.S. economy is looking like one of the world's star performers.
"It looks like growth in the first quarter of this year was actually pretty good," said Paul Dales, an economist at Capital Economics in London.
The Labor Department will release the March employment report on Friday at 8:30 a.m.
The job gains could fuel discussion at the Federal Reserve about whether the central bank should dial back its bond-buying stimulus program, perhaps as soon as this summer. Optimism over the U.S. economy has helped drive a 6 percent gain in the Standard & Poor's stock index since the beginning of the year.
At the same time, analysts note that the spending cuts have only just begun and will be a more substantial drag on the economy between April and June, when many government workers begin taking days off work without pay.
Government payrolls are expected to shed only 9,000 workers in March, roughly the same as in the prior month.
Fed Chairman Ben Bernanke, who has said the labor market must show sustained improvement before monetary stimulus is eased, has voiced concern about the spending cuts.
Even a modest miss for the payroll reading would leave the labor market's recovery broadly on track, analysts said.
Unusually cold weather in March might have dulled hiring in areas such as construction, while nervousness over the federal budget cuts might have made businesses shy about hiring.
These factors could explain some of the slowdown in job growth last month tracked by private payroll processor ADP. They also may have contributed to a dip in sentiment among factory managers and an increase in new claims for jobless benefits last month, said Carl Riccadonna, an economist at Deutsche Bank in New York
Nonetheless, these are widely seen as temporary headwinds for the job market recovery.
"The underlying momentum remains intact," said Riccadonna.
Since the 2007-09 recession ended, the U.S. economy has struggled to grow above a 2 percent annual pace, while output barely grew in the fourth quarter. But growth is widely expected to rebound in the first quarter before growing at around a 2.5 percent in the second half of the year. Rising incomes and progress made by families in reducing debt are seen fueling the above-trend growth.
In March, average hourly earnings are expected to have risen 0.2 percent. That would be the fifth straight month of gains. The length of the average work week is expected to have remained steady at 34.5 hours.
Employment gains last month should be below the 236,000 jobs created in February, but that would still be well above what has passed for normal in recent years. Since the country emerged from a deep recession and payrolls began growing again in 2010, hiring has averaged just 159,000 per month.
Another indicator of labor market health will come in the share of the population that is either employed or looking for work. The jobless rate has fallen a half percentage point since July, but some of this is due to workers' leaving the labor force, either because they retired, went back to school or gave up looking for work.
The labor force participation rate fell to 63.5 percent in February, matching a three-decade low. A stabilization of this indicator could point to more healing in the labor market.