WASHINGTON, Nov 2, 2007 (AFP) -- US job growth accelerated in October as 166,000 new posts were created, the government said Friday in a sign that the economy is weathering housing and credit woes.

October's nonfarm payroll growth was the strongest since May. The reading caught economists off guard as it was more than double the 80,000 anticipated on Wall Street.

The national unemployment rate held steady at 4.7 percent, according to the Labor Department report.

The improved job picture suggests employers are not retrenching in the face of a widespread housing downturn and a credit squeeze that is sweeping the banking industry.

"What a report. It's fantastic. It looks great and the question is why, because aren't we supposed to be on the verge of a recession given the housing crash and the potential credit crunch," said Ian Morris, an economist at HSBC North America.

Job growth, one of the best indicators of economic momentum, was trimmed to a revised 96,000 posts in September from an original estimate that 110,000 jobs were created.

The lion's share of October job growth came from the service sector of the economy which added 190,000 jobs. The goods producing and manufacturing industries did not fare so well and shedded 24,000 and 21,000 jobs respectively.

The business service sector created 65,000 positions while 56,000 new posts were generated by leisure and hospitality companies, but the retail sector lost 22,000 jobs.

Economists say the US economy needs to generate between 110,000 and 140,000 new posts a month to absorb new labor market entrants, so October's reading appeared very robust.

The monthly snapshot was released two days after a separate government survey showed US economic growth quickened to a 3.9 percent clip in the third quarter.

Some economists have expressed concern that the housing downturn could spill over into the wider economy, but the growth and job figures suggest the economy is ticking along at a healthy pace.

The world's biggest economy is expected to slow in coming months, however.

The Federal Reserve cut its key base interest rate by a quarter of a percentage point to 4.50 percent on Wednesday, saying economic momentum would likely cool in the near-term.

"The Fed is concerned about the economy's ability to absorb the financial shocks that turned severe over the summer. Hard evidence on the economy meanwhile, continues to show amazing resiliency," said Stephen Gallagher, an economist at Societe Generale.

HSBC's Morris appeared to agree, saying the central bank would probably opt to keep short-term rates on hold at a policy meeting planned for December 11 barring a financial market meltdown.

"If the Dow falls by another 1,000 points between now and December 11, the Fed will probably cut again, but if things calm down in the financial sector, then it suggests that from a data-driven perspective that the Fed can give December a miss," Morris said.

The central bank has trimmed its federal funds rate twice in recent months, including an aggressive cut of half a percentage point on September 18, partly in a bid to shore up the stressed housing market which has been ailing since early 2006.

Credit worries, unleashed by problems in the mortgage market, have battered Wall Street, trigging multibillion dollar losses at major investment houses such as Merrill Lynch, and unsettled investors.

The job report also showed that average hourly earnings rose a weaker-than-expected 0.2 percent in October to 17.58 dollars. Hourly earnings have increased 3.8 percent in the past year.

Some economy-watchers said while the buoyant payroll snapshot suggests job opportunities abound, weak earnings growth might restrain consumer spending heading into the critical pre-Christmas shopping season.