WASHINGTON (Reuters) -The U.S. economy added far more jobs than expected in March, but President Donald Trump's sweeping import tariffs could undermine the labor market's resilience in the months ahead amid sagging business confidence and a stock market selloff.

The Labor Department's closely watched employment report on Friday suggested steady momentum in the jobs market before the Trump administration's reciprocal duties this week, which unleashed threats of retaliation and roiled global financial markets. China on Friday hit back with a slew of countermeasures.

Trump's 10% minimum duty on most goods imported into the U.S. was much higher than what economists had expected and boosted the nation's effective tariff rate to the highest level in more than a century.

"Today's employment report feels more dated and backward-looking than usual," said Michael Pugliese, a senior economist at Wells Fargo. "The sharp escalation in trade tensions this week has fundamentally altered the economic outlook. Accordingly, the outlook for the U.S. labor market going forward is less sanguine than it was one month ago."

Nonfarm payrolls increased by 228,000 jobs last month after a downwardly revised 117,000 rise in February, the Labor Department's Bureau of Labor Statistics (BLS) said.

Economists polled by Reuters had forecast payrolls advancing by 135,000 jobs after a previously reported 151,000 rise in February. Estimates ranged from 50,000 to 185,000. Part of the surge in payrolls was a rebound after freezing temperatures curbed activity in January and February.

Payrolls were also boosted by the return of about 10,000 striking supermarket workers. The healthcare sector continued to dominate employment growth, adding 54,000 jobs in ambulatory services, hospitals as well as nursing and residential care facilities. Social assistance payrolls increased 24,000.

Retail employment rebounded by 24,000 jobs. Transportation and warehousing added 23,000 jobs amid demand for couriers and messengers as well as truck drivers, likely reflecting a dash by businesses to get goods into warehouses and pre-emptive buying by households ahead of tariffs.

Construction payrolls increased 13,000 as temperatures warmed up. The weather boost was also evident in the 29,800 surge in employment at restaurants and bars. But manufacturing added only 1,000 jobs, while payrolls in the financial sector increased 9,000. The share of industries reporting job growth eased to 54.2% from 56.0% in February.

Federal government payrolls declined by only 4,000 jobs, despite thousands of public workers being fired every week by tech billionaire Elon Musk's Department of Government Efficiency, or DOGE, as part of a radical campaign by the Trump administration to cut spending and downsize the government.

But courts have ordered the reinstatement of thousands of workers, while some have been put on administrative leave and others have opted for deferred resignations.

The BLS said employees on paid leave or receiving ongoing severance pay are counted as employed, explaining the modest decline in federal government layoffs.

"For all of the noise around the DOGE-driven layoffs, the reality is likely to be a slow pace of contraction in federal payrolls over the next year or two and not enough to fundamentally alter the trajectory of the overall labor market," said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets.

Investors shrugged off the report as stale and focused on the escalation in trade tensions.

Stocks on Wall Street dropped sharply for a second straight session, pushing the Nasdaq toward a bear market. The dollar rose against a basket of currencies. U.S. Treasury yields fell.

DETERIORATING CONFIDENCE

Federal Reserve Chair Jerome Powell said on Friday that Trump's tariffs were "larger than expected," adding "the same is likely to be true of the economic effects, which will include higher inflation and slower growth."

Financial markets expect the U.S. central to resume cutting interest rates no later than June after pausing its policy easing cycle in January. Fed officials last month projected two interest rate cuts this year. The Fed's policy rate is currently in the 4.25%-4.50% range.

While the employment report suggested that fears the economy stalled in the first quarter were likely an exaggeration, a recession over the next 12 months remained on the table. Economists warned that tariffs would snarl supply chains and raise prices, culminating in layoffs as spending by both households and consumers retrenched.

They expected the effects of the reciprocal tariffs could be evident as soon as with April's employment report. Retail payrolls are most likely to decline as consumers hunker down.

"We continue to see evidence that an already gradually weakening labor market is ill-positioned to withstand new shocks from elevated uncertainty, increased tariff costs, cuts to government spending and employment, and weakening business and consumer sentiment," said Veronica Clark, an economist at Citigroup. "April data should be at least modestly softer, with clearer weakness starting in May and over the summer months."

The unemployment rate increased to a still-low 4.2% from 4.1% in February as 232,000 people entered the labor force. Average hourly earnings gained 0.3% after climbing 0.2% in February. Annual wages advanced 3.8% after rising 4.0% in February, underscoring the healthy conditions last month.

Nonetheless, there were some signs of softness. More people faced long bouts of joblessness though the median duration of unemployment has eased. Multiple job holders continued to rise as did permanent job losers.

"Were it not for this week's tariff news, today's numbers could have been seen as a Goldilocks report of solid job growth alongside moderating wage inflation trends," said Michael Feroli, chief U.S. economist at JPMorgan.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)