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US shares up as economy slows

Figures on the US economy pleased Wall Street yesterday, writes Diane Coyle. Share prices reached record levels and the dollar rebounded after earlier weakness, thanks to evidence that the economy was slowing down as predicted.

Industrial output rose 0.4 per cent in January, less than half the previous month's rise and in line with expectations. Separate figures for consumer prices showed some evidence of higher inflation, but not significantly more than had been expected.

The figures persuaded analysts that no further increase in US interest rates is likely before the Federal Reserve Board's policy committee meets in May.

The rise in output last month took it to a level 6.2 per cent higher than a year earlier. The strongest sector was business equipment, whose output was up 10.1 per cent in 12 months. Output of consumer goods grew only 3.6 per cent over the same period. Utitlities' output rebounded by 1.3 per cent in January after declining in the last quarter of 1994, although it remained 2.2 per cent down on a year ago.

The Federal Reserve said there had been a widespread slowdown in manufacturing industry. Its comments offset slight disappointment that consumer prices increased by 0.3 per cent in January, up from 0.2 per cent in December. It took the annual rate of inflation to 2.8 per cent.

The rise in "core" consumer prices, excluding food and energy, was 0.4 per cent - a sharp rise from 0.1 per cent the previous month, and taken as the first sign of rising inflation. David Bloom, US economist at James Capel, said that an increase of 0.5 per cent in services prices was particularly worrying.

Financial markets had expected higher inflation and took cheer from the Fed's comments. The Dow Jones Industrial Average was up 36.34 points at 3,994.59 at 2pm New York time, while the dollar had bounded above DM1.51.