Fresh signs of weakness in the economy fuelled expectations that US interest rates will be cut when the Federal Reserve meets a week on Tuesday.
Modest growth in the key jobs figure signalled a weakening US economy. The sales of new homes were also much lower than had been expected.
The 30 year Treasury bond initially soared by a point on hopes of an early cut in rates but later fell back on profit-taking.
"The figures increase the pressure on the Fed to ease rates," said Gerard Lyons, economist at DKB International, suggesting that the Fed was likely to bring down rates by a quarter of a percentage point.
"They certainly support the case for an easing of monetary policy," said Mark Cliffe, international economist at HSBC Markets, "but the Fed is still concerned about the budget negotiations."
Non-farm payrolls, a keenly watched indicator of the state of the economy, certainly offered several clues of developing weakness. The increase of 166,000 was in line with market expectations, but official statisticians said 69,000 was due to special factors. That brought the monthly increase down to around 100,000, a long way off the growth of over 200,000 seen when the economy was expanding fast. In addition, the October figure was revised down by 50,000 to 66,000.
A further sign of increasing slack in the economy was that the average weekly hours worked, a good proxy for GDP growth, dropped in October. Hourly earnings also eased and the rate of unemployment rose from 5.5 to 5.6 per cent.
Another indication of gathering economic weakness was a sharp decline in the sales of new homes, leaving them at their lowest level since May.
The main obstacle to a cut in rates is the continuing stand-off between the Clinton administration and the Republican Congress over the federal budget. This was intensified on Thursday when the administration sent Congress its own plan for balancing the budget within seven years. However, it was immediately given the thumbs down by Republican spokesmen.
A new showdown now threatens at the end of next week when the temporary funding agreement for government spending expires.Reuse content