US employers slashed an unexpectedly steep 240,000 jobs from payrolls last month and the jobless rate shot up to a 14-1/2-year high, the government said on Friday in a report underscoring the economy's steep slide.

The Labor Department also said job losses in September and August were deeper than previously thought.

The economy shed 284,000 jobs in September, the most since November 2001 which was shortly after the September 11, 2001 attacks on the United States, and lost 127,000 in August.

That meant 179,000 more jobs were cut in August and September than previously thought.

So far this year 1.2 million jobs have been lost, 651,000 in the past three months alone, showing labor markets are crumbling faster and heightening chances of a deep recession.

'We have entered the phase of serious recession conditions. Unfortunately we will encounter more of this,' said Richard DeKaser, chief economist for National City Corp in Cleveland.

Analysts said the bleak data could give further impetus to efforts on Capitol Hill to quickly craft a package of measures to help support the economy.

President-elect Barack Obama was set to huddle with top economic advisers later in the day before holding his first news conference since being elected.

Wall Street economists had expected a loss of 200,000 nonfarm jobs in October and had looked for the jobless rate to move up to 6.3 percent from 6.1 percent in September.

Instead, the unemployment rate rose a steep four-tenths of a percent to 6.5 percent, the highest since March 1994.

'The 6.5 percent unemployment rate will only reinforce market talk of a peak in the unemployment rate above 8 percent,' said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.

Still, the data was not as dire as some had feared.

While the dollar extended losses, U.S. stocks rose and prices for U.S. Treasuries turned lower.

'I think people were basically looking for a pretty weak number so it needed to be a tremendous surprise,' said Thomas di Galoma, head of US Treasury trading at Jefferies & Co. 'It needed to be down 350,000 to really get the market rolling.'

The US Federal Reserve has cut benchmark interest rates by 4.25 percentage points over the last 13 months, including 1 point last month alone, in an effort to buffer the economy from a deep housing slump and a widening credit crisis which has reverberated worldwide.

Interest-rate futures prices imply a 64-per cent perceived chance the Fed will lower its target overnight federal funds rate to 0.5 percent at its next policy meeting in December. That would be the lowest on records dating to July 1954.

In manufacturing alone, a whopping 90,000 jobs were cut in October - reflecting in part 27,000 striking workers at Boeing Co. That followed a loss of 56,000 factory jobs in September.-Reuters