* Employment -7,900 in Jan, vs forecast of +15,000
* Jobless rate rise to 6 pct, when 5.8 pct expected
* Yet annual employment growth holds at a strong 2.6 pct
* Market nudges A$ lower, slightly narrows odds on rate cut
By Wayne Cole
SYDNEY, Feb 18 (Reuters) - Australian employment dipped for a second month in January and the jobless rate rose to a four-month high, a disappointing report that knocked the local dollar and slightly narrowed odds on a further cut in rates.
Thursday's data from the Australian Bureau of Statistics showed a net 7,900 jobs were lost in January, when analysts had looked for a rise of around 15,000. All the decline came in full-time employment which fell 40,600.
The jobless rate ticked up to 6 percent, when analysts had expected a steady outcome of 5.8 percent.
The Australian dollar AUD=D4 slipped a quarter of a U.S. cent to $0.7145 on the news. Interbank futures 0#YIB: pared early losses as the market priced in a little more chance of a cut in interest rates.
Currently futures imply around a 50-50 probability of an easing in the 2 percent cash rate by May.
The Reserve Bank of Australia (RBA) has cited the past strength of employment as a major reason for not cutting interest rates even as the global outlook was clouded by a slowdown in China and turmoil in financial markets.
Indeed, even with the latest dip Australia still created a net 298,000 new jobs in the year to January. Annual employment growth held at a strong 2.6 percent, beating even that of the United States.
Policy makers have confessed to being surprised by the strength given the economy was growing around a sub-par pace of 2.5 percent. Many felt the answer lay in the brisk growth of the service sector, which is more labour-intensive than mining or manufacturing.
Hiring in services surged by more than 350,000 in the year to November, with healthcare alone accounting for 151,000.
"Since the financial crisis, health has generated nearly one-third of jobs growth and around 40 percent of the increase in total hours worked in Australia," said Justin Fabo, a senior economist at ANZ.
He offered a laundry list of reasons for why that was likely to continue including an ageing population; more frequent use of health services by all age groups; rising incidence of chronic disease; increased spending on disability care and strong demand for child care.
For its part, the RBA has stated it will be watching closely to see if employment sustained its outperformance and analysts suspect any turn to weakness could greatly add to the chance of a further cut in rates.