U.S. job growth was less than expected in August and the unemployment rate dropped to a 4-1/2-year low as workers gave up the search for work, which could delay the Federal Reserve scaling back its massive monetary stimulus later this month.

Nonfarm payrolls increased 169,000 last month, the Labor Department said on Friday, adding to signs that third-quarter economic growth may have slowed down a bit. The unemployment rate fell to 7.3 percent, the lowest since December 2008.

COMMENTS:

IAN LYNGEN, SENIOR GOVERNMENT BOND STRRATEGIST, CRT CAPITAL, STAMFORD, CONNECTICUT:

"The number came in below expectations, and below what people had been anticipating was the whisper number, close to 200,000. People had increased expectations given this week's series of employment related data up until the report.

"The decline in the unemployment rate was also a function of a decreased participation rate so it's less compelling from a broader labor market perspective. The Treasuries market has appropriately rallied here."

WAYNE KAUFMAN, CHIEF MARKET ANALYST AT ROCKWELL SECURITIES IN NEW YORK:

"The revision is a little shocking. This is telling the same story that we've seen for a while: employers are not firing people, but at the same time there's not a lot of hiring going on. But since the report and the revision are disappointing, that increases the odds of the Fed holding steady. That's why we're seeing a plunge in Treasury yields, which is positive for stock prices."

JOSEPH TREVISANI, CHIEF MARKET STRATEGIST, WORLDWIDEMARKETS, WOODCLIFF LAKE, NEW JERSEY:

"The Federal Reserve probably got what it needed in today's jobs report. Job creation was on par with this year's average and that has already been judged by the Chairman and governors as sufficient to curtail and then end the bank's quantitative easing policy."

MARKET REACTION:

STOCKS: U.S. stock index futures hit session high in volatile trade BONDS: U.S. bond prices added to earlier gains, FOREX: The dollar fell versus the euro and the yen

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