America expects 1% rates

The Federal Reserve was under mounting pressure last night to make an emergency cut in interest rates after a dismal set of US jobless figures sent fresh shudders through global markets.

Dealers shortened the odds on the American central bank reducing borrowing costs to just 1 per cent at its meeting, to be held a week on Tuesday, after it was caught off guard by a 308,000 drop in the number of people employed in non-farm jobs in the US last month.

The scale of the job losses fuelled fears that the world's largest economy could be heading for a double-dip recession. There have been signs in the past few weeks that consumer confidence and retail spending have dropped sharply.

Early losses on Wall Street were erased on hopes of a response from the Fed and rumours that the sons of Osama bin Laden had been captured or shot, and that the net was closing in on the leader of al-Qaida himself.

"It's all Bin Laden," said Matthew Johnson, managing director of trading at Lehman Brothers. "The market is reacting to the fact that they are coming close to capturing someone we thought was dead."

By noon in New York, the Dow Jones industrial average was up by about 50 points following an initial decline of 100 points on the back of the jobless data.

The rally, however, was too late to prevent the FTSE 100 from closing down 63.8 points at 3491.6, a fall of almost 50 per cent since its peak on December 30, 1999.

At one stage the FTSE seemed poised to close below the recent trough of 3480.8, the seven-and-a-half-year low reached on January 27 this year.

Shares in Europe also suffered from a combination of war fears and mounting concern about the health of the global economy.

The DJ Euro Stoxx 50, which measures the stock market value of Europe's 50 biggest quoted companies, fell through the 2,000 level for the first time since 1997, dropping by 2.4 per cent.

Washington blamed part of the unexpectedly large fall in non-farm payroll figures on the call up of reservists for military service.

The severe blizzards that shut down parts of the north east US last month were also blamed for the deterioration in the labour market, which pushed the unemployment rate up to 5.8 per cent.

Pierre Ellis, senior international economist with Decision Economics in New York, said the unemployment figures were "a catastrophically weak number and barring some fluke element to it, which does not seem apparent, the Fed is going to have to think very seriously about cutting interest rates".

He said: "This kind of job loss translates into potential serious damage to consumer spending. A decline in consumer spending would put the economy into double-dip recession very quickly."

Wall Street had been pre dicting a small rise of 8,000 in the non-farm payroll figures after a hefty rise in January, but instead it was confronted with the weakest set of jobless numbers since November 2001, when the economy was still in shock after the terrorist attacks on New York and Washington on September 11.

The semiconductor sector suffered badly after Intel, the world's largest maker of microchips, said late on Thursday night that first-quarter revenues will be flat or down slightly from a year earlier, amid weaker than expected sales of flash memory chips used in cell phones. Its shares fell 56 cents, or 3 per cent, to $16.14.