Jan. 21 (Bloomberg) -- Mexico's jobless rate rose last year at the fastest pace since the aftermath of the 1994 peso devaluation as Chinese manufacturers took market share from Mexican exporters in the U.S.

The unemployment rate jumped to 2.96 percent at the end of 2003 from 2.12 percent a year earlier, the government said.

Karina Maldonado was one of the Mexicans who spent much of last year unemployed as the country failed to benefit from an economic rebound in the U.S. After being laid off from her job as a manager at Ford Motor Co.'s local unit, Maldonado searched unsuccessfully for a job for months before settling on a position selling cars at a Volkswagen AG dealership. Her commute is two hours and her pay is half of what she earned at Ford.

``At first I looked for something close to home and well- paid,'' Maldonado, who ran the auto parts division at Ford's Land Rover unit in Mexico, said in an interview last month. ``Then I said I'd take something anywhere, as long as it was in planning. In the end, I didn't care as long as it was a job.''

Mexican companies such as Ford's local unit have pared staff as their sales to the U.S. haven't risen as much as they expected amid sluggish demand and growing competition from companies in China, where labor and energy costs are lower, said Suhas Ketkar, a senior Latin American economist with Royal Bank of Scotland.

December unemployment was lower than the 3.49 percent rate predicted by a Bloomberg News survey of 10 economists. The Mexican government defines an employed person as someone who is at least 12 years old and who worked at least one hour a week during the month.

`Underemployment'

Mexico's broader ``underemployment'' rate, which also includes employees earnings less than minimum wage or unable to find more than 35 hours of paid work a week, rose to 9.03 percent from 6.86 percent the previous December.

In the first ten months of 2003, Mexican exports to the U.S. rose 1.7 percent to $115 billion, less than one-tenth the 23.8 percent growth in Chinese exports to $125 billion. The Mexican government predicts its economy grew 1.5 percent last year and will expand 3.1 percent in 2004.

The sluggish export growth has prompted economists such as Ketkar to say that Mexico's benefits from its free trade ties to the world's largest market may be waning nine years after the countries signed the North American Free Trade Agreement.

``This time around we do not think that a continued U.S. recovery will provide that much of a lift to Mexico, and its domestic economy is not supportive of growth,'' Ketkar said in a telephone interview from New York.

Maquiladoras

Still, some manufacturing towns along Mexico's 2,000-mile border with the U.S. are seeing hiring again at the so-called maquiladoras -- factories that import supplies and export finished goods. Javier Ledesma, president of the Reynosa Maquiladora Association, said he expects the approximately 100 maquiladoras in Reynosa to increase payrolls by as much as much 6 percent this year.

Mexican unemployment has declined for four straight months, dropping from a six-year high of 3.96 percent in August.

``We've had our fair share of companies that have downsized and some that altogether severed operations to move to mainland China, but in the last two to three months we've seen growth in the area,'' Ledesma said in a telephone interview.

Last Updated: January 21, 2004 16:48 EST