(Adds details from report, market reaction)
* Non-farm payrolls increase 128,000 in October
* General Motors strike costs 41,600 auto jobs
* Unemployment rate rises to 3.6% from 3.5%
* Average hourly earnings gain 0.2%
WASHINGTON, Nov 1 (Reuters) - U.S. job growth slowed less than expected in October as the drag from a strike at General Motors was offset by gains elsewhere and hiring in the prior two months was stronger than previously estimated, offering some assurance that consumers would continue to support the slowing economy.
While the Labor Department's closely watched monthly employment report on Friday showed the unemployment rate picking up from near a 50-year low of 3.5% last month, that was because of an influx into the labor force in a sign of confidence in jobs markets.
The report came on the heels of data this week showing a further slowdown in economic growth in the third quarter as a trade tensions-induced slump in business investment deepened.
The Federal Reserve cut interests rates on Wednesday for the third time this year, but signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.
"The current economic expansion looks set to continue at least through the first part of next year despite the trade war drag," said Gus Faucher, chief economist at PNC Financial in Pittsburgh. "Today's solid jobs report means that the Fed, after cutting its policy rate three times since the summer, is likely to keep rates steady in the near term."
Nonfarm payrolls increased by 128,000 jobs last month, with manufacturing shedding 36,000 positions - the most since October 2009, the government's survey of establishments showed. Striking workers who do not receive a paycheck during the payrolls survey period are treated as unemployed. The strike by about 46,000 workers at GM plants in Michigan and Kentucky ended last Friday.
The economy created 95,000 more jobs in August and September than previously estimated. Economists polled by Reuters had forecast payrolls rising by only 89,000 jobs in October.
Job growth is slowing this year, averaging 167,000 per month compared with an average monthly gain of 223,000 in 2018, in part because of the nearly 16-month trade war between the United States and China, which has undermined business investment.
The Institute for Supply Management's (ISM) employment measure for the manufacturing industry has contracted, likely suggesting manufacturers could be planning workforce reductions. ISM's services sector employment gauge has also declined.
There are fears the business investment malaise could spill over to the labor market, which is underpinning consumer spending. Fed Chair Jerome Powell said he did not see this risk as the labor market remains healthy.
Solid consumer spending blunted some of the drag on the economy from weak business investment to limit the slowdown in growth to a 1.9% annualized rate in the third quarter. The economy grew at a 2.0% pace in the April-June quarter.
With the labor market steadily pushing up wages, consumers are likely to continue carrying the economy. Average hourly earnings increased six cents, or 0.2% last month after being unchanged in September. That kept the annual increase in wages to 3.0% in October. Wage growth peaked at 3.4% in February.
The dollar rose against a basket of currencies on the employment report, while U.S. Treasury prices fell. U.S. stock index futures extended gains.
LABOR MARKET OPTIMISM
The one-tenth of a percentage point rise in the unemployment rate to 3.6% last month also reflected 325,000 people streaming into the labor force. The smaller household survey from which the unemployment rate is derived also showed a moderation in employment after adding 1.57 million jobs in the five months prior to October.
A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, rose to 7.0% last month from 6.9% in September, which was the lowest level since December 2000.
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, increased to 63.3% last month from 63.2% in September.
October's plunge in manufacturing employment reflected a strike-driven 41,600 tumble in payrolls in the auto sector. Manufacturing payrolls fell by 5,000 in September. Manufacturing is struggling under the weight of trade tariffs, which the White House has argued are intended to boost the sector.
Construction employment rose by 10,000 jobs in October. Hiring in the sector has slowed from a peak of 56,000 jobs in January. There were increases in professional and business services, healthcare, leisure and hospitality, financial activities, retail and wholesale trade employment last month.
Government employment fell by 3,000 jobs in October as 20,000 temporary workers hired for the 2020 Census completed their work.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)