Rate rise fears prompt Wall Street sell-off

Fears that the Federal Reserve might be forced into further increases in interest rates to cool the booming US economy sent shivers through Wall Street yesterday, prompting a sharp shares sell-off.

Strong retail sales, higher than expected factory orders and anticipation that today's jobs report will show the economy struggling with labour shortages combined to upset sentiment. The Dow Jones industrial average was down by almost 200 points to 10750 by lunchtime in New York, extending its loss to around 500 points since America's central bank raised borrowing costs last week. Other share price indices were also heavily marked down.

With the dollar coming under pressure on the foreign exchanges, bond markets showed concern at the risk of higher inflation. The benchmark 30-year treasury bond was down almost three-quarters of a point and the yield rose to 6.13%.

Analysts had hoped that last week's move by the Fed - the second in two months - would be enough to ease the pressure on the economy. However, they now believe any further evidence that demand remains strong will trigger further action when the Fed next meets in early October.

Meanwhile, the board of the New York stock exchange was meeting on Thursday to discuss moves towards an initial public offering for the world's largest stock exchange.

The NYSE said it discussed "possible conversion to a for-profit corporation". At present the NYSE is a membership firm, held by the owners of its 1,366 seats.

Richard Grasso, the NYSE's chairman and chief executive officer, has said he would like to see the exchange go public by late November but has conceded that may be optimistic.

Arthur Levitt, head of the Securities and Exchange Commission, has warned it might be difficult for a for-profit stock exchange to police itself effectively.