WASHINGTON- U.S. private payrolls increased more than expected in September as COVID-19 infections started subsiding, boosting hiring at restaurants and other high-contact businesses.

Private payrolls increased by 568,000 jobs last month, the ADP National Employment Report showed on Wednesday. Data for August was revised lower to show 340,000 jobs added instead of the initially reported 374,000. Economists polled by Reuters had forecast private payrolls would increase by 428,000 jobs.

"Stronger job growth in September could indicate that the drag on hiring from the recent increase in coronavirus cases is fading," said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania.

Employment gains averaged 410,000 jobs in the third quarter, a slowdown compared to the second-quarter average of 748,000. Last month, the leisure and hospitality industry added 226,000 jobs after creating 155,000 positions in August.

Manufacturing payrolls increased by 49,000 jobs, while hiring at construction sites also rose by 49,000. Job gains in other sector were modest. Large firms accounted for the bulk of job creation last month, followed by medium-sized companies. Small business hiring climbed by 63,000 after rising 61,000 in August.

The ADP report is jointly developed with Moody's Analytics and was published ahead of the Labor Department's more comprehensive and closely watched employment report for September on Friday.

Though it flagged the sharp slowdown in job growth in August, it largely has a poor record predicting the private payrolls count in the department's Bureau of Labor Statistics (BLS) employment report because of methodology differences.

"Today's number broadly supports our view that the labor market is continuing to recover and that job growth picked up in September relative to August, but the ADP report has not been a very reliable predictor of the BLS data," said Daniel Silver, an economist at JPMorgan in New York.

Attention now shifts to September's government employment report, which will be crucial for the Federal Reserve after the U.S. central bank signaled last month that it would likely begin reducing its monthly bond purchases as soon as November.

Economists say the bar is low after Fed Chair Jerome Powell, said last month that the economy was one "decent" monthly employment report short of meeting the threshold for tapering its massive bond buying program.

According to a Reuters survey of economists, nonfarm payrolls likely increased by 473,000 jobs in September. The economy created 235,000 jobs in August, the fewest in seven months. The unemployment rate is forecast dipping to 5.1% from 5.2% in August.

"It looks like the gain in employment will qualify as 'decent'," said Paul Ashworth, chief economist at Capital Economics in Toronto.

But labor market indicators were mixed in September. A survey from the Conference Board last week showed consumers' views of current labor market conditions softened.

The number of people on state unemployment rolls fell in mid-September relative to mid-August. The Institute for Supply Management's measure of manufacturing employment rebounded last month after contracting in August. But the ISM's gauge of services industry employment slipped, with businesses reporting that "labor shortages (were) experienced at all levels."

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci) ((Reporting By Lucia Mutikani) ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: lucia.mutikani.thomsonreuters.com@reuters.net))