American employers hired at the slowest pace in nine months in March, a sign that Washington's austerity drive could be stealing momentum from the economy.

The economy added just 88,000 jobs last month and the jobless rate ticked a tenth of a point lower to 7.6 percent largely due to people dropping out of the work force, Labor Department data showed on Friday.

Analysts polled by Reuters had expected a gain of 200,000.

KEY POINTS:

February data has been revised to 268,000 from 236,000, January to 148,000 from 119,000.

The household survey showed workforce down by 496,000 in March, compared with a decline of 130,000 in February

COMMENTS:

ADAM BUTTON, A CURRENCY ANALYST AT FOREXLIVE, IN MONTREAL:

"The market has been sniffing out a soft reading, so it's less of a shock than it might seem. But the market is seeing some extremely large moves in the U.S. dollar. Remember the Bank of Japan has left the market especially jittery."

"The temptation will be to blame it on the sequester, and that might be a small portion of it. But I believe the cold weather and the early Easter holiday were larger factors."

"The commentary from the Fed has been optimistic in recent months. I think we see a shift in that and hear less talk about tapering asset purchases by the end of the year."

MOHAMED EL-ERIAN, CO-CHIEF INVESTMENT OFFICER AT PACIFIC INVESTMENT MANAGEMENT CO., NEWPORT BEACH, CA.:

"Notwithstanding favorable revisions, the report will fuel concerns about another spring swoon for the economy, the adverse impact of Congressional dysfunction and, more generally, the weak underlying dynamism of the economy.

"The fall in the labor participation rate is particularly worrisome.

"This report will dampen some of the recent talk on a tapering of the experimental policies pursued by the Federal Reserve and by an increasing number of other central banks around the world.

JOHN KILDUFF, PARTNER, AGAIN CAPITAL LLC IN NEW YORK:

"The report is a real disappointment due to the small increase in new jobs and the generational low in the participation rate.

"The recent decline in crude oil prices seemed to foreshadow this negative data point and the outlook for energy demand growth will be impaired as a result.

"The view that Federal Reserve is readying a pullback in easing measures because of the recent improvement in employment will also be tabled, which lend support to commodity prices in the future, but, for now, inflation pressures will continue to be lacking due to poor job creation."

PETER JANKOVSKIS, CO-CHIEF INVESTMENT OFFICER, OAKBROOK INVESTMENTS LLC, LISLE, ILLINOIS:

"The unemployment number is not meaningful in this environment.

"This is not a sign we're going backwards, but it suggests the slope of the recovery is lower than people might have hoped for after the first quarter's numbers."

CRAIG DISMUKE, CHIEF ECONOMIC STRATEGIST, VINING SPARKS, MEMPHIS, TENNESSEE:

"This is a very disappointing number. It looks to me in January and February, we saw unseasonably strong activity. Now we are paying back in March. We might finally be seeing the impact of sequestration cuts and the tax hikes in the beginning of the year. Looks like we are going to have another spring slowdown. This keeps the Fed in play, which should be supportive of stocks and bonds."

BRUCE MCCAIN, CHIEF INVESTMENT STRATEGIST AT KEY PRIVATE BANK IN CLEVELAND, OHIO:

"It is shockingly weak, but part of the problem was that expectations were bolstered by our strong first quarter. We're back to the cautious side. This is probably below the trend, but we mistook above-trend numbers for a major improvement in the economic backdrop that didn't occur. This adds fundamental concerns to concerns we had about prices having gotten ahead of themselves, which creates the potential for even further declines."

MARKET REACTION: STOCKS: U.S. stock index futures extended losses BONDS: U.S. bond prices extended gains FOREX: The dollar extended losses versus the euro

Graphic - U.S. nonfarm payrolls: U.S. payrolls grew by 88,000 in March. http://link.reuters.com/ram54t

(Americas Economics and Markets Desk; +1-646 223-6300)