Dow surges to new all-time high as pay data shows inflation-free growth

Share prices leapt to record highs in the US after new figures confirmed that the American economy is continuing to grow with no sign of inflation.

Share prices leapt to record highs in the US after new figures confirmed that the American economy is continuing to grow with no sign of inflation.

European shares also climbed, with early gains boosted by a surge on Wall Street. The FTSE 100 index closed nearly 85 points up at 6,742.2, while shares in Paris reached a new record and Frankfurt also ended higher.

The excitement in the stock markets contrasted with a quiet day on the foreign exchanges. The euro bobbed around the $1.00 level yesterday, and hit a new sterling low of 62.44p.

However, the currency avoided a fresh wave of selling that would have sent it tumbling despite the increasingly bitter political row over the weakness of the exchange rate.

Figures yesterday showing a strong 236,000 increase in non-farm jobs in the US, combined with a tame 1 cent rise in average hourly earnings, took all the major stock market indices to new records.

The Dow gained a hefty 302.17 points to reach a new intra-day high of 11,341.23 before falling back. The S&P500 had gained 34 points to reach 1,442.94 by midday, while the technology-heavy Nasdaq was 87 points up at 3,540.01. For the Nasdaq it was the 17th record high in five weeks.

The White House was jubilant about the news that President Bill Clinton's seven years in office have produced 20 million new American jobs. The unemployment rate remained at 4.1 per cent, a three-decade low. "It is the greatest job growth of any administration in our history," said White House spokesman Joe Lockhart.

The latest signs of US economic strength also drove the euro back below dollar parity. Earlier it had made a brief recovery, clawing back above that psychological threshold.

The continuing recriminations within Europe over who was to blame for the falling exchange rate, along with the new evidence of the extraordinary performance of the US economy, promise to keep the European currency weak for the foreseeable future.

Most analysts did not expect the European Central Bank to intervene in support of the currency, and said the next rise in interest rates in Euroland would also be some way off unless the exchange rate began to plunge rapidly. That could happen if the euro falls far enough against the dollar to trigger automatic "stop-loss" trades, but traders said yesterday's low of $0.9990 was still above that point.

Mark Cliffe, an economist at ING Barings, said the euro's decline was unlikely to turn into a rout. "In any case, were the euro to fall much more, the fact that trading volumes are so low suggests that the ECB's first heavy bout of intervention could have a powerful effect."

The politics of the euro's parity with the dollar are more worrying than the economic implications. Experts said the weak euro was good for member states' economies.

"Euroland's recovery over the course of 1999 has owed much ­ perhaps everything ­ to a weaker-than-expected euro," said Alison Cottrell of PaineWebber.

Bankers and officials played down the weakness yesterday. Otmar Issing, ECB chief economist declined to comment directly but said the low inflation outlook for the euro zone was supportive for the currency. "I can only repeat; a currency such as the euro that has and will have a stable internal value has also a strong potential for a strong external value," he said.

In Brussels, a spokesman said Romano Prodi, the European Commission President, was not concerned about the level of the euro. "We believe this is a short-term movement. Currencies go up and down, and we believe the material basis and the fundamentals of the European economy are sound and improving," Riccardo Levi said.

Wim Duisenberg, president of the European Central Bank, repeated his view that Eurozone growth will gain strength despite the currency's troubles. In an interview with the Wall Street Journal yesterday, he said: "I won't deny that what I regard as the overshooting in a downward direction of the exchange rate is a psychological disappointment, though it doesn't give me cause for concern."

Ironically, it emerged yesterday that the European Commission will confirm on Tuesday that six candidates to join the single currency ­ Poland, the Czech Republic, Hungary, Slovenia, Estonia and Cyprus ­ have made satisfactory progress towards qualifying. All will be ready to adopt the euro by the end of 2002.