By Burton Frierson NEW YORK (Reuters) - Private employers slashed an unexpectedly high 250,000 jobs in November, the most in seven years, while the service sector that powers most of the economy posted its worst slump on record. The reports on Wednesday were the latest signs that the job market is nowhere near a bottom as the U.S. recession enters its second year and the entire economy was still in a state of trauma after the worst financial crisis in a generation. "The severe damage to the service industry is another indication of the extraordinary force of this recession," said Pierre Ellis, senior economist at Decision Economics in New York. The Institute for Supply Management said its non-manufacturing index came in at 37.3, the worst in the gauge's 11-year history and below October's already weak 44.4. It was well below the level of 50 that separates expansion from contraction and much worse than the median forecast of 42.0 expected in a Reuters poll of 71 economists. Every major category in the ISM survey hit a record low, particularly bad news for the United States, where 80 percent of economic activity is driven by the service sector, including businesses such as banks, airlines, hotels and restaurants. U.S. stocks extended losses after the surprisingly weak ISM, while U.S. Treasury debt prices, which benefit more from poor economic conditions, turned positive, and the dollar was at session lows versus the yen. NOT A RAY OF LIGHT ADP Employer Services, in the first reading of the job market since the U.S. economy was formally declared to have entered recession, said private companies cut jobs for a fourth straight month in November. The 250,000 jobs lost significantly exceeded the 200,000 median forecast of 24 economists polled by Reuters. As in the ISM, there was little in the ADP report, jointly developed with Macroeconomic Advisers LLC, to spur optimism. "It's impossible to find any ray of light here," said Joel Prakken, chairman of Macroeconomic Advisers in St. Louis, Missouri. ADP revised October's private job cuts upward to 179,000 from the originally reported loss of 157,000. The more definitive U.S. government November payrolls report is due on Friday, when the Labor Department is expected to say nonfarm employment fell by 320,000, the eleventh straight month of losses, according to a Reuters poll. However, the swoon in the ISM's employment indicator suggested to some a more dire outcome in the payrolls report. "This is consistent with payrolls falling by about 500,000; let's hope it is very wrong," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. The unemployment rate is forecast to have risen to 6.8 percent, the highest since October 1993, from 6.5 percent in October. The ADP report was the first snapshot of the labor market following the declaration on Monday that the U.S. economy has been in recession for a full year. The National Bureau of Economic Research, the official arbiter of economic cycles, said the contraction began in December 2007, and forecasts suggest it will rival or even exceed the downturns of the 1970s and 80s, the longest in the period since World War II. In the lone silver lining to Wednesday's slew of data, interest rates on U.S. mortgage loans fell to an average 5.47 percent last week, their lowest in more than three years, and mortgage applications surged by a record amount. The jump in mortgage activity was an indication that a new Federal Reserve program to buy $500 billion of mortgage-backed securities from home-financing facilitators Fannie Mae, Freddie Mac and Ginnie Mae was helping bring down home loan costs, which had stayed stubbornly high, impeding a recovery in the slumping U.S. housing market. In another signal that U.S. employers were making do with fewer workers, non-farm productivity was slightly stronger than initially forecast in the third quarter. Still the pace of growth remained the slowest this year as output saw its biggest decline in seven years, the Labor Department said. (Additional reporting by Lucia Mutikani, Julie Haviv, Vivianne Rodrigues and Ellen Freilich; Editing by James Dalgleish)

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