By Lucia Mutikani

WASHINGTON (Reuters) - U.S. employers cut far fewer jobs than expected last month in the best showing for the labor market since the recession began, lifting the beleaguered U.S. dollar as investors bet a sustainable recovery was building.

The economy shed only 11,000 jobs in November, well below the 130,000 loss financial markets had braced for, while the unemployment rate unexpectedly dropped to 10 percent from October's 10.2 percent, government data showed on Friday.

The data from the Labor Department signaled a broad-based improvement in the job market. In addition, job losses in September and October were revised down by a total of 159,000, contributing to the report's strong tenor.

"It suggests that the labor market is much closer to its trough and more synchronized with broader measures of economic growth," said Brian Fabbri, chief North America economist at BNP Paribas in New York.

Traders speculated the data could lead the Federal Reserve, which next meets on December 15-16, to raise interest rates sooner than had been thought.

That sent the dollar soaring and pushed down prices for U.S. government debt. Against a basket of currencies, the dollar posted its biggest gain in nearly a year. <.DXY>

U.S. and European stocks jumped on the data. But the U.S. market later retreated slightly. The three major U.S. stock indexes ended higher, but off the 15-month highs hit earlier in the day, as investors began to fret over the potential dampening impact of higher rates. <.N>

"The economy is lifting at a much greater rate than expected," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York.

A separate report on factory orders for October showed a higher-than-expected 0.6 percent rise and the first gain in inventories in more than a year. Still, a subset of the data seen as a proxy for business investment retreated 3.4 percent.

HELP FOR OBAMA

While the jobless rate edged down, high unemployment remains a political headache for President Barack Obama and fellow Democrats, who are worried they will lose seats in Congress in next November's elections without a faster recovery.

Speaking in Pennsylvania, Obama described the data as good news and a sign that better days are ahead.

But he emphasized that there is more work to do.

"We still have a long way to go. I still consider one job lost, one job too many. The journey from here will not be without setbacks or struggle. There will be more bumps in the road. But the direction is clear," Obama said.