* Nonfarm employment increases 148,000 in September * Unemployment rate falls to 7.2 percent from 7.3 percent * Average hourly earnings up, workweek steady * Wall Street sees Fed waiting until March to trim bond buys By Lucia Mutikani WASHINGTON, Oct 22 (Reuters) - U.S. employers added far fewer workers than expected in September, suggesting a loss of momentum in the economy that will likely add to the Federal Reserve's caution in deciding when to trim its monthly bond purchases. Nonfarm payrolls increased by 148,000 workers last month, the Labor Department said on Tuesday. While the job count for August was raised, the employment gain in July was revised lower and was the weakest since June 2012. The closely watched report suggested the economy lost steam even before an acrimonious budget fight that led to a damaging 16-day partial shutdown of the federal government. "The numbers indicate that the economy is growing at a modest pace at best," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California. "Considering the uncertainties from the government shutdown, tapering (of the Fed's bond purchases) has been postponed until further notice." But there was a silver lining in the report. The unemployment rate fell a tenth of a percentage point to 7.2 percent, the lowest level since November 2008. A measure of underemployment that includes people who want a job but who have given up searching and those working part time because they cannot find full-time jobs also fell a tenth of point, to 13.6 percent, the lowest since December 2008. Economists had expected the economy to add 180,000 jobs in September and the unemployment rate to hold at 7.3 percent. Stocks ended higher as investors welcomed the prospect of continued monetary stimulus from the U.S. central bank. The Standard & Poor's 500 index hit yet another record high. U.S. Treasury debt prices also advanced and the yield on the benchmark 10-year note touched a three-month low. The dollar dropped to an eight-month low against a basket of currencies. The employment report was released more than two weeks later than originally scheduled because of the government shutdown that ended last Wednesday. With the extent of the economic damage from the fiscal standoff unclear, the Fed will likely hold off any decision on scaling back its economic stimulus. Fed officials will meet next Tuesday and Wednesday to discuss monetary policy. They surprised markets last month by sticking to their $85 billion per month bond-buying pace, saying they wanted to see more evidence of a strong recovery. "We don't look for any material changes to monetary policy at next week's meeting and most likely in December either," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. "We are now looking at March." A Reuters poll of big bond dealers conducted after the jobs figures were released found that most expect the central bank to wait until March to begin dialing back its purchases. SLUGGISH FOURTH-QUARTER GROWTH EYED While the economy was already struggling before the government shutdown, the brinkmanship in Washington has dampened expectations of a sharp acceleration in fourth-quarter growth. Economists estimate the shutdown shaved as much as 0.6 percentage point off annualized fourth-quarter gross domestic product, through reduced government output and damage to both consumer and business confidence. Now there are fears lawmakers will engage in another economically costly fight early next year when Congress must agree on a budget to fund the government and once again raise the nation's borrowing limit. "With the possibility of a replay of the budget showdown as early as mid-January, why would the Fed want to pull any levers now?" said Cary Leahey, a senior economist at Decision Economics in New York. Payroll growth in the third quarter averaged 129,000 per month, far less than the 200,000 average in the first half of the year. Economic growth forecasts for the quarter are currently around a 2 percent rate. The economy expanded at a 2.5 percent annualized pace in the second quarter. The jobless rate has fallen by 0.7 percentage point since the start of the year despite the economy's sluggish growth, partly because many Americans have given up the hunt for work. In September, however, the drop in unemployment came even as the share of working-age Americans who either have a job or are looking for one held steady, albeit at a 35-year low. JOB GAINS MIXED BY SECTOR Employment gains in September were mixed across sectors. Government payrolls increased by 22,000 jobs after rising by 32,000 in August. Both state and local governments added jobs last month, offsetting a decline in federal employment. The data showed surprise weakness in the leisure and hospitality industry, which has been adding jobs consistently over the past years. The industry lost 13,000 jobs, the most since December 2009. Retail employment growth slowed significantly from the solid gains seen for much of this year, with payrolls increasing 20,800. The retail and the leisure and hospitality sectors have been the leading job creators. But there was good news in the construction industry, where payrolls increased 20,000. Construction employment had barely increased over the prior two months, and the gain in September could ease fears of a leveling off in home building. Those concerns were further allayed by a separate report from the Commerce Department showing construction spending at a near 4-1/2-year high in August. In September, the manufacturing sector added a meager 2,000 jobs as automakers shed workers, despite strong vehicle sales. Average hourly earnings increased three cents in September. They have risen 49 cents or 2.1 percent over the past 12 months. The length of the average workweek held steady at 34.5 hours.