Wall St unsettled as retail figures soar

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American shoppers set a cracking pace for retail sales in the first two months of 1997. Stronger-than-expected figures yesterday sent shares on Wall Street and treasury bonds lower because of fears that US interest rates will rise this month.

The Dow Jones index fell below the 7,000 barrier by mid-morning, with shares down more than 61 points at 6,978.18.

Retail sales rose by 0.8 per cent last month, while January's increase was revised to 1.5 per cent, more than twice the first estimate. "If we continue like this from February, we will see the best sustained retail spending in about 10 years," said Jonathan Basile, an analyst at HSBC Markets in New York.

Separate figures showed a decline in new unemployment claims last week, with a drop of 5,000 taking the average for the past four weeks to its lowest since 1989.

As always, analysts hold mixed views about whether or not the Federal Reserve will raise interest rates at the next meeting of its Open Markets Committee on 25 March. But the balance of evidence has tipped towards expecting a quarter-point increase.

Yesterday's retail sales figures followed further evidence last week that the American economy is creating jobs at an extraordinary pace. The non-farm payrolls total jumped by 339,000 in February.

The Federal Reserve's "Beige Book", the regional survey of the economy which provides the basis for Fed interest rate decisions, contained evidence on Wednesday of future inflation pressures. Most regions reported that businesses found it difficult to recruit new staff.