Shares soar as interest rate dangers recede

Shares leapt in London and New York yesterday with the danger of interest rate increases on both sides of the Atlantic apparently out of the way for now, and new figures pointing to the absence of pay pressure in America's flourishing jobs market.

The FTSE 100 index set a record, ending nearly 42 points higher at 4,307.8. It was the second record-breaking day this week, and analysts immediately started looking forward to passing the next psychological barrier at 4,400.

In New York, the Dow Jones Industrial Average closed up 84.67 points at 6,857.73 after registering a 77-point gain by midday. Technology stocks, led by IBM and Intel, were particularly strong. The New York Stock Exchange had imposed its curbs on automatic trades within 10 minutes of opening.

Figures showing a somewhat smaller-than-expected rise in non-farm jobs last month and a dip in average hourly earnings were read by the financial market as a vindication of the Federal Reserve's decision not to raise the cost of borrowing earlier this week.

Hugh Johnson, chief investment officer at First Albany, said: "It's hard to beat the combination of strong job growth and little or no inflation. Relief has touched all markets."

Both countries' currencies made fresh gains yesterday. The pound ended more than two pfennigs higher at DM2.7155, while its index against a range of currencies was up 0.4 at 97.2.

It fell slightly in value against a strong dollar. The US currency reached its highest level against the yen for four years, at 124.71, although it fell back later when Treasury Secretary Robert Rubin warned that exchange rates would be top of the agenda for discussion at today's meeting of G7 finance ministers in Berlin.

The trigger for yesterday's stock market gains was the news that the number of people on non-farm payrolls had climbed by "only" 271,000 in January. Employment rose across the board with the exception of a very slight dip in the construction industry.

The biggest growth was in services, where there was an unexpected increase of 88,000 in temporary workers. The unemployment rate edged up a fraction to 5.4 per cent, but it has now been below 6 per cent for more than two years.

Of more interest to the financial markets was the fact that average hourly earnings were only a cent higher, at $12.06, after sharp rises adding up to 15 cents in November and December. In addition, average hours worked declined from 34.8 to 34.1.

Although the market reaction was entirely favourable, some economists saw the figures as evidence that the economy was still picking up speed. Past figures were revised up, while the drop in hours worked was probably due to unusually severe weather.

"The domestic economy is strengthening. The market rose today because the number was lower than the Street's inflated expectations, not because it genuinely points to a slowdown," said Ian Sheperdson, chief economist for HSBC Markets in New York.

Comments from Harvey Hamel, an economist at the Bureau of Labour Statistics, supported this view. He said both earnings and hours worked were trending upwards despite their January dip. Both could rebound next month.

The advance on Wall Street boosted shares in London and the rest of Europe. Investors in the UK were slightly cautious, however, ahead of figures on inflation, earnings and unemployment due next week.

The Bank of England's Inflation Report, due on Wednesday, is also expected to repeat the warning that interest rates will have to rise at some point if inflation is to hit its target over a two-year horizon. But virtually no analysts expect the Chancellor of the Exchequer to raise base rates this side of the general election.

Market report, page 22

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Solvency II Project Manager - 10 month contract - £800 p/d

£800 per day: Ashdown Group: A highly successful, global financial services co...

SThree: Trainee Recruitment Consulant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250...

Guru Careers: Financial Controller

£45 - £55k DOE: Guru Careers: A Financial Controller is required to join a suc...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£12500 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Day In a Page

Mullah Omar, creator of the Taliban, is dead... for the fourth time

Mullah Omar, creator of the Taliban, is dead... again

I was once told that intelligence services declare their enemies dead to provoke them into popping up their heads and revealing their location, says Robert Fisk
Margaret Attwood on climate change: 'Time is running out for our fragile, Goldilocks planet'

Margaret Attwood on climate change

The author looks back on what she wrote about oil in 2009, and reflects on how the conversation has changed in a mere six years
New Dr Seuss manuscript discovered: What Pet Should I Get? goes on sale this week

New Dr Seuss manuscript discovered

What Pet Should I Get? goes on sale this week
Oculus Rift and the lonely cartoon hedgehog who could become the first ever virtual reality movie star

The cartoon hedgehog leading the way into a whole new reality

Virtual reality is the 'next chapter' of entertainment. Tim Walker gives it a try
Ants have unique ability to switch between individual and collective action, says study

Secrets of ants' teamwork revealed

The insects have an almost unique ability to switch between individual and collective action
Donovan interview: The singer is releasing a greatest hits album to mark his 50th year in folk

Donovan marks his 50th year in folk

The singer tells Nick Duerden about receiving death threats, why the world is 'mentally ill', and how he can write a song about anything, from ecology to crumpets
Let's Race simulator: Ultra-realistic technology recreates thrill of the Formula One circuit

Simulator recreates thrill of F1 circuit

Rory Buckeridge gets behind the wheel and explains how it works
Twitter accused of 'Facebookisation' over plans to overhaul reverse-chronological timeline

Twitter accused of 'Facebookisation'

Facebook exasperates its users by deciding which posts they can and can’t see. So why has Twitter announced plans to do the same?
Jane Birkin asks Hermès to rename bag - but what else could the fashion house call it?

Jane Birkin asks Hermès to rename bag

The star was shocked by a Peta investigation into the exotic skins trade
10 best waterproof mascaras

Whatever the weather: 10 best waterproof mascaras

We found lash-enhancing beauties that won’t budge no matter what you throw at them
Diego Costa biography: Chelsea striker's route to the top - from those who shared his journey

Diego Costa: I go to war. You come with me...

Chelsea's rampaging striker had to fight his way from a poor city in Brazil to life at the top of the Premier League. A new book speaks to those who shared his journey
Ashes 2015: England show the mettle to strike back hard in third Test

England show the mettle to strike back hard in third Test

The biggest problem facing them in Birmingham was the recovery of the zeitgeist that drained so quickly under the weight of Australian runs at Lord's, says Kevin Garside
Women's Open 2015: Charley Hull - 'I know I'm a good golfer but I'm also just a person'

Charley Hull: 'I know I'm a good golfer but I'm also just a person'

British teen keeps her feet on ground ahead of Women's Open
Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkish President Erdogan could benefit politically from the targeting of the PKK, says Patrick Cockburn
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn or a return to a Labour government

Our choice is years of Tory rule under Corbyn or a return to a Labour government

Yvette Cooper urged Labour members to 'get serious' about the next general election rather than become 'a protest movement'