Markets soar as jobs figures in US quell fears of rate rise

THE FINANCIAL markets soared yesterday after jobs figures showed the United States economy growing less rapidly than expected. The report dampened fears of a third interest rate rise this year, a concern which has been a drag on the stock market for the past few weeks.

Investors are nervously eyeing every piece of economic data to detect what it might mean for the future course of interest rates. Alan Greenspan, the chairman of the Federal Reserve, has led the Fed in two increases this year, but appears agnostic as to whether a further increase is required.

The Dow Jones Industrial Average leapt 170 points within an hour of the market's opening, taking the index above 11,000. Yields on the benchmark Treasury long bond fell back to 6.03 per cent from 6.14 per cent.

In London the FTSE 100 index built on its gains earlier in the day to end up 136.5 points at 6,332.1. The monthly purchasing managers' survey of service industries in the UK showed activity continuing to expand at a healthy pace, but costs - mainly wages - also increased.

The US jobs figures showed the economy growing a shade less rapidly than investors, at least, had believed. The number of workers employed outside the farm sector rose by 124,000 in August, the Labor Department announced. July's increase had been more than 300,000. The unemployment rate fell slightly to 4.2 per cent, down from 4.3 per cent.

Manufacturing jobs declined by 63,000, when economists at investment firms had been expecting an increase. Employment in the sector had risen in July after months of problems caused by the weak prospects for US exports. The services sector - including computing and health care - remained very strong.

The jobs figures also brought encouraging news of trends in US wages. Average hourly earnings increased by just 0.2 per cent in August. That represents a 3.5 per cent increase over a year ago, a lower pace of growth than analysts expected.

However, Mr Greenspan has warned about the risks of a slowdown in the productivity of US workers, which will pose inflationary dangers if it fails to keep pace with earnings.

Productivity slowed sharply earlier this year, according to figures released on Thursday, climbing at an annual rate of just 0.6 per cent in the second quarter. Unit labour costs picked up sharply, rising to 4.5 per cent, the fastest in five years.