The unemployment rate remains at a 28-year low as the labour market continues to be in buoyant mood.

Payroll employment outside the farm sector climbed 296,000 following upwardly revised growth of 302,000 in April. The figures surpassed Wall Street economists expectations, who had forecast an increase of around 221,000 jobs in May.

The jobless rate is still at 4.3%, its lowest level since 1970.

Interest rates likely to be held

US analysts stress that there is no real sign yet of wage inflation. Average earnings held steady at $12.73 per hour, up just 4 cents on April's figure.

US employers created more jobs than expected

Analysts pointed out that the constrained growth in wages is probably enough to persuade the Federal Reserve not to raise short-term interest rates for the time being.

"It is another very strong report. The Fed will view the report with some concern, but I don't think it will make them sufficiently concerned to hike rates in July," said Cynthia Latta, economist at DRI/McGraw Hill.

The May report "is simply not strong enough to make the Fed think inflation is going to accelerate," said Richard Berner, chief economist at Mellon Bank.

Kevin Flanagan, economist at Dean Witter Securities, said there would be no sense of renewed urgency at the Fed to raise rates because the May data did not show a troubling gain in wages or any significant acceleration in new hires. "Labor markets are drum tight, we know that. But we are not seeing wage gains that are bothersome," he said.

Manufacturing jobs suffer

Economists said the only weakness in the May report came from the manufacturing sector, where employment fell by 26,000 jobs which has been put down to the Asian economic crisis.

The encouraging news on wage inflation meant stocks on Wall Street opened higher in early afternoon trading.

David Resler, managing director at Nomura Securities International, said: "Creating nearly 300,000 jobs a month is what you usually see in the early stage of expansion. It's most unusual, stunning, in the eighth year of an expansion."