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Wall Street cheered by muted new jobs data

Shares powered ahead on Wall Street last night and the dollar gained ground after the latest US employment statistics showed a smaller than expected rise in new jobs and an actual rise in unemployment rates during January.

Analysts warned that the statistics for January were liable to seasonal influences, but the market decided the figures meant that after seven interest rates rises in 12 months the US economy was slowing to a sustainable rate of growth and interest rates could now stabilise.

The US unemployment rate, which had fallen from 6.7 per cent a year ago, jumped unexpectedly from 5.4 per cent in December to 5.7 per cent last month. Analysts had expected the economy to generate 225,000 new jobs outside the farming sector, and unemployment to stay at 5.4 per cent.

In the event only 134,000 new jobs were created, the smallest monthly number since January 1994, and the December figure was revised down from 256,000 to 210,000, following the surge of 534,000 in November. The household survey showed 69,000 jobs had been created while the labour force grew by 411,000.

Hourly wages rose 0.6 per cent to $11.32 in January,against an expected $11.28, while the average working week rose from 34.6 to 34.9 hours.

Sterling, meanwhile, came under heavy pressure yesterday, falling almost two cents against the dollar and two pfennigs against the mark, ending the day at DM2.3876 and $1.5652. Dealers blamed the sharp fall on fears that the political crisis in Northern Ireland and the alienation of Ulster Unionist support could lead to a sudden defeat for the Government.

The prospect of rising interest rates adversely affecting the economy has not helped, however, and the expected level of UK interest rates expressed in the sterling futures market edged slightly higher across the board yesterday, projecting a gradual rise in rates to 7.75 per cent by the summer, and 8.5 per cent by the end of the year.

The latest statistics gave a mixed picture. Bank lending to the personal sector rose by £2,499 in the final quarter of 1994, 37 per cent faster than in the previous quarter. But it is not clear whether this was a sign of consumer confidence or an involuntary rise in borrowing to cope with increasing interest rates and higher tax burdens, the British Bankers' Association said yesterday.

In previous cycles an upturn in interest charges has frequently added to customers' outstanding debts initially.

Companies too may have stopped reducing borrowings and begun returning to banks for finance, the BBA said.