WASHINGTON (Reuters) – U.S. employment gains surged in February, the clearest sign yet of labor market strength that could further ease fears the economy was heading into recession and allow the Federal Reserve to gradually raise interest rates this year.

Nonfarm payrolls increased by 242,000 jobs last month and 30,000 more jobs were added in December and January than previously reported, the Labor Department said on Friday. The unemployment rate held at an eight-year low of 4.9 percent even as more people piled into the labor market.

“Despite panic on Wall Street about impending recession, Main Street goes about its business as usual. This report will get the Fed’s attention, and raises the odds of another rate hike before too long,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

The only blemish in the report was a three-cent drop in average hourly earnings, which in part reflected a calendar quirk and the proliferation of low-paying retail and restaurant jobs. The average length of the workweek also fell last month.

The employment report added to data such as consumer and business spending in suggesting the economy had regained momentum after growth slowed to a 1.0 percent annual rate in the fourth quarter.

Growth estimates for the first quarter are around a 2.5 percent rate, but risks are tilted to the downside after a report from the Commerce Department on Friday showed the trade deficit widened 2.2 percent to $45.7 billion in January.

Economists had forecast employment increasing by 190,000 last month and the jobless rate holding steady.

U.S. stocks were trading higher on the data, while prices for U.S. Treasury debt fell. The dollar slipped against a basket of currencies on concerns about wage growth.

Fears of recession in the wake of poor economic reports in December and slowing growth in China sparked a global stock market rout at the start of the year, causing financial market conditions to tighten.

Though financial markets have priced out bets of a rate hike at the Fed’s March 15-16 policy meeting, they now see a roughly 50 percent chance of an increase at the September and November meetings, according to CME FedWatch.

But economists believe the strong job market and improved growth outlook, together with signs that inflation is creeping up, could prompt the U.S. central bank to lift borrowing costs in June.

The Fed raised its key overnight interest rate in December for the first time in nearly a decade.

“The lack of a more marked pickup in wage growth is the only missing element,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto. “But as far as the Fed is concerned, it is already seeing a clear acceleration in core price inflation. A June rate hike is coming.”

EYE ON WAGES

Average hourly earnings dipped 0.1 percent in February, the first drop since December 2014, after spiking 0.5 percent in January. That lowered the year-on-year earnings gain to 2.2 percent from 2.5 percent in January.

The average workweek fell to a two-year low of 34.4 hours last month from 34.6 hours in January, but economists cautioned that the series tended to be volatile.

“If labor demand was really about to fall, why was there such a sharp rise in employment?” said Harm Bandholz, chief U.S. economist at UniCredit in New York.

With labor market slack being absorbed, wage growth is expected to accelerate.

A broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell two-tenths of a percentage point to 9.7 percent, the lowest level since May 2008.

Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working-age population.

Also adding to the strong tone of the jobs report, the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, increased two-tenths of a percentage point to 62.9 percent, the highest level in just over a year. The employment-to-population ratio hit its highest level since April 2009.

Job gains were almost broad-based in February, though manufacturing and mining employment fell. The services sector created 245,000 jobs after adding 153,000 jobs in January.

Mining shed a further 18,000 jobs after losing 9,000 positions in January. Mining payrolls have declined by 171,000 jobs since peaking in September 2014, with three-fourths of the losses in support activities.

More losses are likely after oilfield services provider Halliburton Co <HAL.N> said last month it would cut a further 5,000 jobs because of a prolonged slump in oil prices.

Manufacturing lost 16,000 jobs, reversing some of January’s surprise increase. Private education jobs rebounded after plunging in January. Construction payrolls increased 19,000 and government added 12,000 jobs.

Retail payrolls increased 54,900, adding to the 62,100 positions created in January. Leisure and hospitality jobs rose 48,000, with employment at restaurants and bars increasing by 40,200.

(Reporting by Lucia Mutikani; Editing by Clive McKeef and Paul Simao)