Markets surge on US economy data

FINANCIAL MARKETS soared on both sides of the Atlantic yesterday after figures showed the US economy roared ahead over the summer without sparking wage inflation.

FINANCIAL MARKETS soared on both sides of the Atlantic yesterday after figures showed the US economy roared ahead over the summer without sparking wage inflation.

Stocks and bonds surged while Larry Summers, the US Treasury Secretary, declared there was little threat of rising inflation in the US economy, which grew 4.8 per cent in the third quarter compared with a year ago, ahead of forecasts. But two key price measures rose more slowly while the key Employment Cost Index rose less than expected.

The London stock market was the first to react, surging ahead minutes after the data was released. It wiped out a 55 deficit to close up 103 points or 1.7 per cent higher at 6,149. By midday Wall Street was up 218 points or 2 per cent at 10,613. The dollar rallied to four-week highs against the euro.

Mr Summers said: "Increases in capacity, along with improvements in productivity performance, have made possible increases in living standards without inappropriate inflationary pressures."

Nick Stamenkovic, senior bonds analyst at IDEAglobal.com, said the markets had breathed a sign of relief that inflation "had not reared its ugly head".

"The data confirm that the economy is alive and well," he said, adding that the Fed would still raise rates 25 basis points next month as "insurance" against inflationary pressures in the pipeline.

The US authorities also revised the GDP figures over the past 40 years, showing that since the expansion began in 1991 the economy has grown at 3.5 per cent a year rather than 3.1 per cent as previously thought.