The US economy churned out new jobs in January at the fastest rate in more than two years while the unemployment rate tumbled to a four-month low of 5.7 per cent, the government said on Friday in an unexpectedly upbeat jobs report.

In a surge fuelled by a recovery in retail hiring, the number of workers on US payrolls outside the farm sector rose 143,000 after a 156,000 decline in December, according to the Labour Department. It was the biggest increase in payrolls since November 2000, before the 2001 recession.

The unemployment rate fell three-tenths of a percentage point from December's six per cent. It hit its lowest level since September.

The increase was more than double the 70,000 jobs US economists in a Reuters survey had forecast. The fall in the jobless rate ran counter to expectations it would remain at the six per cent mark.

Revisions to the December report made that month's payrolls look a bit weaker - the department originally said they fell only 101,000.

The US economy suffered a sharp slowdown in the final three months of last year, limping along at an annual rate of just 0.7 per cent. Many economists believe that a cloud of uncertainty caused by the threat of a US war with Iraq is contributing to business reticence about hiring and investing.

But there have been a few hints of improvement lately, with some data series showing manufacturing activity reviving. Although there were gains in US employment in a variety of sectors, factory jobs fell by 16,000. Retail employment, however, climbed 101,000, recovering from December's drop of 99,000.