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Despite the conflicting signals in the Labor Department's report on Friday, economists agreed a job market recovery was proceeding apace if not gaining speed. Many investors also saw the data as a sign of strength. Government bonds sold off, while the dollar rallied against the yen and the euro.

The payrolls gain reported by U.S. employers was a quarter of the 145,000 gain economists had expected. But a separate household survey, which is used to determine the jobless rate, showed nearly 600,000 more people reported they were employed.

That surge pushed the unemployment rate to 9 percent from 9.4 percent in December. It has dropped 0.8 percentage point since November, the biggest two-month decline since 1958.

"The payroll details and the drop in unemployment signal that there is an underlying improvement in the labor market buried under the snow and ice," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Still, the decline in the jobless rate is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

Fed Chairman Ben Bernanke on Thursday sounded a more upbeat note on the economy, but said "it will be several years before the unemployment rate has returned to a more normal level."

Economists estimated that blizzards, which pounded the Northeast in January and buried cities in knee-deep snow, reduced payrolls by between 50,000 and 100,000.

Signs of underlying strength in the labor market were also yielded by revisions to November and December payrolls, which showed 40,000 more jobs created than previously estimated.

The U.S. Treasury debt sell-off pushed the spread between two-year yields and 10-year yields to an 11-month high. Stocks on Wall Street were little changed in mid-afternoon.

JOBS MIGHT BE UNDERSTATED

Though the Labor Department's payroll count continues to show moderate growth, independent surveys have suggested a pick-up in the pace of job creation, raising concerns that the government might be missing growth coming from new businesses.

Labor Department chief economist Betsey Stevenson told reporters the count was likely falling short, just as faulty estimates of how many companies were created or destroyed led to an understatement of job losses during the recession.

"It's a challenge for the establishment survey to be able to accurately record the number of businesses that are starting up and the number of businesses that are shutting their doors," Stevenson said.

"Now that we are in a recovery it's most likely, but we won't know for sure until next year, that we are missing a lot of businesses that are opening their doors and that we're over estimating the number of business that might be shutting their doors."