US job figures boost markets on both sides of the Atlantic

John Willcock
Sunday 23 October 2011 08:39

A favourable mix of US employment and earnings figures boosted stock and bond markets on both sides of the Atlantic yesterday, as investors concluded that the Federal Reserve would not have to raise interest rates soon.

The February non-farm payroll numbers from the US were ahead of analysts' expectations but were offset by weaker-than-expected average hourly earnings.

The FTSE-100 index closed 21 points higher at a record 4420.2, while the Dow Industrials index in New York rallied more than 50 points in late morning trading yesterday and triggered the exchange's automatic curbs on index-arbitrage trades.

The US Labor Department said average hourly earnings in February rose by 3 cents, or 0.2 per cent, a smaller rise than analysts expected. At the same time, 339,000 jobs were created last month, the most since May and more than the 231,000 jobs forecast. The US jobless rate fell to 5.3 per cent from 5.4 per cent in January.

The report offered relief to some investors, who said the Fed's chairman, Alan Greenspan, would not now have to act immediately to raise interest rates to curb growth and inflation.

"Today's numbers are not enough to hang your hat on for a tightening," said Barbara Kenworthy, who helps manage $8bn of bonds for Prudential Mutual Funds in Newark, New Jersey.

The US bond market rose strongly and helped to underpin the Dow's rise. Immediately after the release of the figures US bonds fell about 1 point, or $10 per $1,000 bond, before rebounding in a matter of eight minutes. The benchmark 30-year bond rose about a quarter of a point, pushing its yield down 2 basis points to 6.86 per cent.

The Fed next meets to debate monetary policy on 25 March. Mr Greenspan has left the target for the overnight bank lending rate at 5.25 per cent since January 1996.

President Clinton welcomed the 5.3 per cent rate for US jobless in February as "good news for American workers" and said he wanted to work with Congress to pass a balanced budget.

"It's time to keep this American job engine on the move by passing a balanced budget plan that invests in education and our future," he said.

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