May 5 (Bloomberg) -- Employers in the U.S. added fewer jobs than expected last month, while wages jumped because factories filled more high-paying positions, government figures showed today. The unemployment rate held at 4.7 percent.

The 138,000 gain in payrolls for April followed a revised 200,000 increase the month before and was the smallest rise since October, the Labor Department reported today in Washington. Hourly earnings were up 3.8 percent from April 2005, the biggest gain since August 2001.

The slowdown in hiring may give the Federal Reserve room to pause in its credit-tightening campaign after an expected interest-rate increase at next week's meeting, economists said. Treasury prices and stocks rose on signs slower employment growth may moderate pressures on wages in coming months.

``We didn't hire as many people as we thought we were going to, but people are working longer hours and being paid more,'' said Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina. ``Until you see wages feed into prices then you can have these sorts of average hourly earnings growth reports'' without raising inflation fears, he said.

The yield on the benchmark 10-year Treasury note fell 5 basis points to 5.10 percent as of 4:32 p.m. in New York. Stocks rose, with the Dow Jones Industrial Average gaining 138.88 points, or 1.2 percent, to 11,577.74, its third-highest close ever.

Interest-rate futures showed traders were certain the Fed will increase its benchmark rate to 5 percent, from 4.75 percent, on May 10. The contracts showed there is about a 36 percent chance the rate will reach 5.25 percent by June, down from 48 percent before the report.

Consumer Borrowing

Fed rate increases are making it more expensive to borrow, and in March, consumers charged less on their credit cards. Consumer credit rose $2.5 billion, in April, the smallest increase in four months, the Fed said in a separate report.

Federal Reserve Bank of Atlanta President Jack Guynn said on May 1 that there is ``little if any measurable correlation between tight labor markets and inflation.'' The central bank's interest-rate policy is ``very close'' to a level that's ``properly calibrated'' to the outlook for moderating economic growth, Guynn said.

Guynn is a voting member of the policy-setting Federal Open Market Committee this year.

Some economists said the report still signals strength in the labor market with increases in wages and hours worked suggesting a risk of accelerating inflation.

June Forecast

John Ryding, chief U.S. economist at Bear Stearns & Co. in New York, said ``this report does not signal economic weakness and does point to growing labor market pressures.'' He forecasts Fed policy makers will raise rates at their June meeting.

With labor costs rising Fed Chairman Ben S. Bernanke ``has to be worried that this could lead to higher inflation,'' said Joel Naroff, president of Naroff Economic Advisers in Holland, Pennsylvania. ``He is being tested right off the bat.''

Economists expected payrolls to rise by 200,000, according to the median of 74 forecasts in a Bloomberg News survey, after an originally reported 211,000 gain in March. Estimates ranged from increases of 165,000 to 250,000. Economists at Stone & McCarthy Research Associates in Princeton said a typical range between the low and high forecast is about 150,000.

Workers' average hourly earnings rose 0.5 percent, or nine cents, after a 0.3 percent increase in March. Economists expected a 0.3 percent gain in April.

`Good News'

``It's uniformly good news,'' Treasury Secretary John Snow said after the report showed rising wages. ``What this report shows is there is continuing momentum in our labor markets.''

Employment rose at manufacturers and construction companies, which tend to pay higher wages than retailers and may explain the larger-than-expected rise in earnings during the month. Factories added 19,000 jobs, the most since May 2004, and employment in construction increased 10,000. Retail employment dropped 36,100 last month, the most since September.

The loss of retail jobs ``may have simply been seasonal adjustments and a late Easter,'' said Naroff.

The labor force participation rate, which measures the percentage of the working-age population that is employed or seeking employment, held at 66.1 percent for a third month, today's report showed.

Employment in service industries, including banks, retailers and government agencies, rose 101,000 last month after rising 185,000 in March, today's report showed. ``We are hiring quite a few people, and mostly for very technical jobs,'' Alexander Lidow, chief executive officer at International Rectifier Corp., an El Segundo, California-based maker of semiconductors, said in an interview today.

``This looks like a very, very good year shaping up,'' Lidow said. ``We're seeing quite a bit of very healthy demand.''

Average Workweek

The workweek rose to 33.9 hours from 33.8 in March. The manufacturing workweek held at 41.1 hours for a second month. Overtime fell to 4.5 hours from 4.6 hours.

Economists expected overall hours worked to hold at 33.8 for an eighth month, according to the Bloomberg survey.

Productivity of employees at all businesses other than farms rose 3.2 percent last quarter after falling 0.5 percent in the last three months of 2005, the government said yesterday. Companies probably will be less able to rely on the efficiency of employees in coming months, economists said.

``At this point in the cycle it's more difficult for companies to achieve output growth just by raising productivity,'' said Nigel Gault, director of U.S. research at Global Insight Inc., a Lexington, Massachusetts-based forecasting firm.

Labor Market Strength

Reports released earlier this week showed strength in the labor market.

A release by ADP Employer Services and Macroeconomic Advisers that was released on May 3 showed private companies added 178,000 jobs in April. The company says there is a 90 percent correlation between its data and the Labor Department's monthly employment figures.

Challenger, Gray & Christmas Inc. said on May 2 that U.S. employers cut the fewest number of jobs in a year last month.

The U.S. economy expanded at a 4.8 percent annual rate last quarter, the fastest in more than two years. Growth is projected to average 3.4 percent this year, down from 3.5 percent in 2005.

Among blacks, the unemployment rate rose to 9.4 percent, today's report showed. The jobless rate for Hispanics held at 5.4 percent and for whites rose to 4.1 percent from 4.0 percent.

The unemployment rate for teenagers fell to 14.6 percent in April. For women, the jobless rate rose to 4.3 percent and it rose to 4.2 percent for men.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net .