UPDATE 1-New Zealand unemployment rate drops to decade low of 3.9 pct

WELLINGTON, Nov 7 (Reuters) - New Zealand’s unemployment rate surprisingly dropped to 3.9 percent in the third quarter, hitting a fresh ten-year low, according to data released by Statistics New Zealand on Wednesday.

That was well below the 4.4 percent unemployment rate recorded in the last quarter, and is the lowest since the June 2008 quarter, when it was 3.8 percent.

Economists polled by Reuters had forecast an unemployment rate of 4.5 percent.

The employment growth rate in the quarter more than doubled to 1.1 percent, from 0.5 percent in the previous quarter. Economists had predicted an employment growth of 0.5 percent.

The Reserve Bank of New Zealand holds its policy meeting on Thursday, when it is widely expected to hold interest rates at a record low of 1.75 percent.

“While this quarter’s unemployment rate is outside market expectations, we know New Zealand has a small economy with a dynamic labour market, and large changes, both up and down, have happened before – in late 2012 and 2015,” Statistics New Zealand labour market and household statistics senior manager Jason Attewell said.

The New Zealand dollar rallied more than 1 percent against the dollar to a three-month high of $0.6740.

The labour participation rate climbed to 71.1 percent from 70.9 percent, the data showed.

At the same time, annual wage growth eased to 1.9 percent, in line with expectations, compared to 2.1 percent in the previous quarter.

Wage inflation has been tepid in recent years even employment has grown. Quarterly wage growth slowed to 0.5 percent in the third quarter from 0.6 percent in the previous quarter. (Reporting by Charlotte Greenfield and Praveen Menon, Editing by Rosalba O’Brien)