Wall St expects rate cut after rise in jobless

Lengthening US dole queues and the spectre of a renewed recession in manufacturing sent the dollar plunging to a three-month low against the euro yesterday, as Wall Street anticipated an emergency cut in interest rates next week.

Monthly non-farm payrolls figures showed a 5,000 fall in the number of Americans at work, pushing the unemployment rate to 5.7% and raising fears that the US economy could be about to stall.

Odds on the Bank of England following the Fed into a rate cut diminished slightly, however, as survey evidence showed growing order books and rising output has helped Britain's struggling manufacturing sector notch up a third consecutive month of expansion in October.

"Overall, UK manufacturing industry continues to struggle but there are still few signs that conditions are likely to deteriorate significantly in the months ahead," said Ross Walker of the Royal Bank of Scotland. "A sluggish and erratic recovery in the manufacturing sector still seems more likely than a 'double-dip' recession."

On the foreign exchanges, the dollar briefly fell below parity with the euro, before bouncing back after the latest snapshot of US manufacturing proved to be not as bad as many analysts had predicted.

The institute for supply management's monthly survey registered its lowest reading since December last year, when global demand collapsed after the New York terror attacks.

The figures for US jobs and manufacturing came after a week in which evidence showed the US is struggling to maintain its momentum of recovery seen earlier this year.

"Manufacturing activity declined again in October," said the ISM's Norbert Ore. "The sector lacks drivers at this point. While new orders are relatively unchanged, the uncertainty about terrorism and potential military action continue to add to the stagnation."

With consumer confidence showing signs of cracking and unemployment on the rise, Wall Street analysts were say ing yesterday that a cut in interest rates of at least 0.25 percentage points looks certain.

"I think that the market is building in a slightly greater chance of a half-point cut now," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. "A 100% probability of a quarter-point cut is built-in. We're priced for an 8% chance of a half-point cut now." The ISM's monthly index of the manufacturing sector sunk to 48.5, from 49.5 in September - below the break-even 50-mark, signalling a second consecutive contraction in the sector.