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Australian employers unexpectedly cut jobs in December, capping the labor market’s worst year in almost two decades, as investors raised bets on interest-rate reductions. The local currency declined.

The number of people employed fell by 29,300 last month after a revised 7,500 drop in November, the statistics bureau said in Sydney today. The median estimate in a Bloomberg News survey of 23 economists was for a 10,000 increase. The year ended with a revised 5.2 percent jobless rate and little change in payrolls from December 2010, their worst annual performance since 1992.

The data validate Reserve Bank of Australia Governor Glenn Stevens’s decision to cut rates at back-to-back meetings for the first time since 2009 as Europe’s sovereign debt crisis weakens prospects for global growth. Housing has slumped, retail sales stalled in November, and manufacturing and services are struggling with a stronger local dollar.

“The clear message is that the labor market has slowed materially in the second half of 2011 and that’s going to be one of the major concerns for the Reserve Bank as we move through 2012,” said Brian Redican, senior economist in Sydney at Macquarie Group Ltd. (MQG), Australia’s biggest investment bank.

Australia’s dollar weakened after the report, trading at $1.0397 at 12:05 p.m. in Sydney from $1.0423 before the release and $1.0437 yesterday in New York. Investors are pricing in 107 basis points of rate cuts over the next 12 months, up from 103 points, a Credit Suisse Group AG Index showed at 12:02 p.m. in Sydney today.

Full-Time Jobs
The number of full-time jobs advanced by 24,500 in December, and part-time employment plunged by 53,700, today’s report showed.

Australia’s participation rate, a measure of the working- age population, dropped to 65.2 percent in December, the lowest level since May 2010, from 65.5 percent a month earlier, it showed.

Leading indicators of employment have been weaker as pessimism about the global economic outlook deepens.

A closely watched government measure of job vacancies dropped 3.3 percent in the three months to November, retracing all of the gains in the prior period.

Help-wanted notices fell in December for the fifth time in six months as the bout of global financial turmoil worsened, an Australia & New Zealand Banking Group Ltd. report released three days ago showed.

Bank Firings
UBS AG analysts said in a Jan. 13 report that Australian banks may scrap 7,000 jobs in the next two years as the nation’s lenders cut costs that account for 58 percent of expenses to offset the weakest credit growth since World War II.

The focus on employment costs at banks, which are among major employers in the biggest cities of Sydney and Melbourne, mirror the challenge faced around the world by lenders battling slower revenue growth amid weak household and business confidence. ANZ Bank, the third biggest in Australia by market value, is preparing to cut as many as 900 jobs in coming months, the union that represents bank workers said last week.

The World Bank this week lowered its global growth forecast by the most in three years, saying that a recession in the euro region threatens to exacerbate a slowdown in emerging markets such as India and Mexico.

The global economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent, the Washington-based institution said. The euro area may contract 0.3 percent, compared with a previous estimate of a 1.8 percent gain.

Stevens reduced the overnight cash rate target to 4.25 percent from 4.5 percent on Dec. 6, citing “considerable turbulence” in financial markets and an increased chance of a “further material slowing in global growth.”

“The fact that the unemployment rate is still broadly steady tells you that we’re still in reasonable shape,” said Paul Bloxham, chief economist for HSBC Holdings Plc in Sydney and a former central bank official. “This is consistent with the idea that the RBA will be cutting rates next.”