WASHINGTON (Reuters) - U.S. employment rose last month at the fastest pace in nearly four years as hiring increased across a wide array of industries, the government said on Friday in a surprisingly strong report that stunned financial markets.

The report offers comfort to President Bush as the jobs market -- a hot political issue in the U.S. presidential campaign -- finally made a decisive break out of a long slump. Nevertheless, U.S. jobs lost since Bush took office still number a hefty 1.8 million.

Non-farm payrolls climbed 308,000 in March, helped a bit by the return of workers after a labor dispute at California grocery stores ended, the Labor Department said. This was the biggest gain since April 2000 and well above the 103,000 rise expected on Wall Street.

The big jump in March payrolls stood in sharp relief to the average gains of around 75,000 seen in the prior six months.

The unemployment rate, which is determined by a separate survey, ticked up to 5.7 percent from the two-year low of 5.6 percent seen in January and February.

The stock market opened strongly, the value of the dollar shot higher and U.S. bond prices plunged as investors were caught flat-footed by the labor market strength.

Economists said the report suggested the Federal Reserve could raise overnight interest rates from the current 1958 low of 1 percent sooner than had been expected.

"The Fed is still likely to wait and see if we see similar strong job growth in future months," said Gary Thayer, chief economist at A.G. Edwards & Sons in St. Louis. "But if we've turned the corner, the Fed may not wait much longer."

The department said the end to the California grocery store dispute, which had idled 72,000 workers, boosted March payrolls by 10,000 to 20,000. The impact was muted because many of the returning employees displaced temporary hires.

January and February payrolls were revised upward a combined 87,000, contributing to the report's positive tone.

"All in all, this is a very strong report," said Kurt Karl, head of research at Swiss Re in New York. "This is a number that everyone has been waiting for."

"It bodes well for the economy going forward," he said.

Job gains were widespread across industries.

Construction payrolls shot up by 71,000, a bounce-back from a 21,000 decline in February many economists had pinned on bad weather.

Retailers added 47,000 workers, in part a reflection of the return of the idled grocery store employees.

While a long-hoped for rise in manufacturing employment did not materialize, the department said factory payrolls were unchanged last month, finally breaking a string of 43 consecutive monthly declines.

The big payrolls jump offered hope the U.S. economy was finally moving out of an unusually long spell in which employment was either falling, or rising too slowly to keep up with the usual growth in the labor force.

While the economy climbed out of recession in November 2001, employment has yet to regain its pre-recession peak.

In the only other jobless recovery since World War II, which was the crawl back from the 1990-91 recession, it took 14 months for the number of employed to get back to where it stood when the recession ended.