* U.S. lost 539,000 jobs in April, fewest since October

* Jobless rate hits 8.9 percent, highest since Sept 1983

* 5.7 million jobs lost since start of U.S. recession (Updates with closing market prices)

By Lucia Mutikani

WASHINGTON, May 8 (Reuters) - U.S. employers cut 539,000 jobs last month, the fewest since October, according to government data on Friday that signaled the economy's steep decline might be easing and gave the stock market a boost.

The unemployment rate, however, soared to 8.9 percent, the highest since September 1983, from 8.5 percent in March, and job losses in March and February were a combined 66,000 steeper than previously estimated, the Labor Department said.

A 72,000 jump in government payrolls tempered the overall job-loss figure. Government employment was bolstered by the hiring of about 60,000 temporary workers in preparation for the 2010 census and U.S. Labor Secretary Hilda Solis said this figure would fluctuate in the months ahead.

Private sector employment fell by 611,000 in April after a 693,000 decline in March, the department said, which curbed some of the optimism over the report.

Still, the data was not as bleak as financial markets had expected and offered the freshest sign that the intensity of the recession, now in its 17th month, was starting to fade.