The US unemployment rate has dropped to a three-year low, which some economists say may be one of the strongest signs yet that the country's recession-hit economy is improving.

The jobless rate was at 8.5 per cent at the end of 2011, which means an extra 200,000 jobs were created during December, the US labour department said in a report on Friday.

It was the biggest rise in three months and well above economists' expectations for a 150,000 gain.

Robert Sinche, a financial analyst in the US, called it a "solid report", echoing other experts.

"This is the fifth month of the year where private payrolls were up 200,000."

But Todd Schoenberger, a managing director of Landcolt Trading, a US financial firm, said January of this year would be a more reliable test that an economic recovery was occuring.

"The wildcard is January as retailers trim seasonal staff. An upside surprise for this month will validate the argument that an economic recovery is indeed taking place," he said.

Good news for Obama

The unemployment rate drop is at its lowest level since February 2009, a encouraging sign for President Barack Obama whose re-election hopes could hinge on the state of the labour market.

Republican presidential hopefuls have criticised Obama's economic policies as doing more harm than good.

The latest economic signs, however, could offer the president some political protection, as over the course of last
year, the economy added 1.6 million jobs, the most in five years.

Still, the US has a long way to go to compensate the jobs lost during the 2008 economic recession. At December's pace of job growth, it would take about two and half years for employment to return to the pre-recession level.

Despite the stronger-than-expected employment data, US stocks opened down slightly. Prices for US government debt initially fell but soon covered their losses, while a broad index of the dollar's value hit a one-year high.

And as the debt crisis in Europe looks far from being resolved and tensions over Iran threatening to drive up oil prices, the US economy faces stiff challenges ahead.

Source: Agencies