Setback for US rate cut hopes

DIANE COYLE

Economics Correspondent

Hopes that interest rates will fall in the US later this month received a setback yesterday from stronger-than-expected figures for manufacturing orders.

The disappointment held Wall Street back from setting a new record after its 63-point surge to 5,600.15 on Monday, but economists said there was still a chance that the Federal Reserve would reduce rates after its 26 March meeting. Figures for February employment, due on Friday, are likely to be decisive.

The Dow Jones index, which last week hit a high of 5,630.49, was four points lower at midday yesterday, having retraced an opening jump. Shares in London ended subdued after a buoyant start which took the FT-SE 100 index to a intra-day record of 3,792.5, although most analysts still firmly expect a cut in UK interest rates at the end of this week.

The FT-SE 100 index finished the day nearly nine points higher at 3777.1, just four points shy of its closing all-time high. Gilts fell slightly, following the lead of US Treasuries.

Germany's Bundesbank is also expected to ease policy, with 28 March seen as the most likely date. Shares in Frankfurt ended lower yesterday.

The culprit behind yesterday's volatility in the markets was an unexpected increase in US factory orders and orders for durable goods in January. Most economists had expected them to fall as a result of the blizzards that month.

Brian Fabbri, economist at the investment bank Paribas in New York, said: "The expectations were more affected by the weather than the figures turned out to be." He said on balance it still looked like the economy was uncomfortably weak in the first quarter of the year. New orders for factory goods rose 0. 5 per cent in January, their fourth increase in six months.