U.S. employers cut 345,000 jobs last month, the fewest since September and far less than forecast, according to a government report on Friday that was more evidence the economy's severe weakness was diminishing.
However, the Labor Department said the unemployment rate raced to 9.4 percent, the highest since a matching rate in July 1983, from 8.9 percent in April.
March and April's job losses were revised down to show a smaller declines of 652,000 and 504,000, respectively.
Analysts polled by Reuters had forecast non-farm payrolls dropping 520,000 in May. The unemployment rate had been forecast to rise to 9.2 percent.
While the job losses in May were spread across almost all sectors, the pace of layoffs was slower than in prior months.
Payrolls in construction industries fell 59,000 after dropping 108,000 in April, likely as a result of the government's historic $787 billion stimulus package.
The service-providing industry shed 120,000 positions after eliminating 230,000 in April. The manufacturing sector purged 156,000 jobs in May, likely reflecting auto plant shutdowns in the wake of Chrysler's bankruptcy filing. The sector shed 154,000 in April.
Education and health services sector payrolls expanded by 44,000 after increasing 13,000 the prior month. Government, which in April added 92,000 jobs, mostly related to preparations for the 2010 census, cut 7,000 positions in May.
Since the start of the recession in December 2007, the economy has lost 6.0 million jobs, the department said.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)