Traders nix bets on summer U.S. rate hike after weak jobs report

(Reuters) - Traders on Friday abandoned bets on a summer interest-rate hike in the United States after a government report showed U.S. employers added far fewer jobs in May than expected, suggesting economic growth may have lost some momentum.

The Federal Reserve is now expected to wait until November or later before raising rates, rather than doing so in July, based on the price of futures contracts tied to the Fed's benchmark policy rate.

Indeed, traders now see little chance of the Fed increasing rates more than once in 2016, in contrast to the Fed's view, in its most recent forecasts, that two hikes would be appropriate.

Nonfarm payrolls increased by only 38,000 jobs last month, the smallest gain since September 2010, the Labor Department said on Friday.

The slowdown in job gains "is quite surprising," said Russell Price, senior economist at Ameriprise Financial Services Inc in Troy, Mich. "The Fed was pretty much in line to raise rates on June 15. I think this is the number that really puts them on hold."

Traders see no rate hike until at least November, when they peg the probability of an increase at about a 52 percent chance, although it is just one week before the U.S. presidential election. Traders put December at a 68 percent probability, based on Fed funds futures prices.

(Reporting by Ann Saphir and Herb Lash in New York; Editing by Chizu Nomiyama and Bernadette Bayn)