The unemployment rate for October to December fell 0.2% to a 35-month low of 6.5% while the underemployment rate fell 0.1% to 3.1%.

However, the number of employed surged 20,400 to a historic high of 3.328 million. The total labour force also rose by 10,200 to 3.544 million.

Financial Secretary Henry Tang said the falls in jobless rates are significant since the figures have been stagnant for a while, but the Government remains vigilant because Hong Kong is still undergoing a structural change in the economy.

Mr Tang said as the labour sector is still facing many challenges, he is cautious yet optimistic about the economic outlook, and pledged to co-operate with all sectors to continue reviving the economy.

As raised in the Chief Executive's 2005 Policy Address, Mr Tang said close to 10,000 temporary contract jobs in the public sector involving $700 million have been extended to meet operational needs.

The Census & Statistics Department said the number of unemployed fell 9,200 to 227,000, the lowest level since the quarter starting November 2001, and the number of underemployed dipped 1,900 to 111,000.

Falls in the unemployment rate were mainly seen in the wholesale trade, restaurants, business services and hotels sectors.

As to the underemployment rate, falls were concentrated in the foundation and superstructure construction, transport and miscellaneous personal services sectors.

The department said total employment grew at a faster pace and also more extensively across many occupational categories, as overall economic activity was boosted additionally by increased consumer spending around the Christmas holidays.

This more than offset an accelerated increase in the labour supply, and the number of unemployed fell to its lowest level since November 2001.

Looking ahead, as business activity is likely to stay buoyant during the run-up to the Lunar New Year, labour demand is expected to be sustained in the near term.

The overall atmosphere of the labour market continued to improve, which was evidenced by the high level of vacancy and job placement figures recorded by the Labour Department.

Traditionally, company hirings tend to slacken towards the end of the year but the department still received 24,589 job vacancies from the private sector last December, representing a significant surge of 47.3% over a year ago.

For 2004 as a whole, the department netted an all-time high of 297,186 vacancies from the private sector, up 38% over 2003.

The department also achieved a historic high job placement figure of 86,257 last year, up 31% over 2003.