UPDATE 1-US lay-offs surge 85 pct in Aug vs July-survey 05 Sep 2007 19:59

(Adds details, background)

NEW YORK, Sept 5 (Reuters) - Planned U.S. lay-offs rocketed in August as the housing slowdown and subprime mortgage debacle led to record job cuts in the financial sector, an independent report showed on Wednesday.

Announced lay-offs surged 85 percent to 79,459 in August from 42,897 in July, according to Challenger, Gray & Christmas Inc, an employment consulting firm. August's job cuts were the highest since February, when they totaled 84,014.

"Nearly half of the August cuts came from the financial sector, as dozens of mortgage and subprime lenders caved under the pressure of a sinking housing market," Challenger, Gray & Christmas said in a statement.

Financial job cuts totaled 35,752 in August, the highest monthly total for the industry since Challenger, Gray & Christmas began tracking in 1993, the firm said.

August's job cuts rose 22 percent from the previous August, when 65,278 cuts were announced.

Rapidly rising defaults on mortgages made to riskier borrowers prompted credit markets around the world to seize up in late July and into August. That essentially severed the credit lines to a number of mortgage finance companies, cutting off their ability to fund loans made to U.S. homebuyers.

One of the most spectacular collapses occurred when Melville, New York-based American Home Mortgage Investment Corp., which had been the No. 10 U.S. mortgage lender, filed for bankruptcy in early August and fired nearly all of its work force. ((Reporting by Burton Frierson; Editing by Tom Hals; Reuters Messaging burton.frierson.reuters.com@reuters.net; +1-646-223-6292))

Keywords: USA ECONOMY/JOBS CHALLENGER