Rise in US employment dims hope of rate cut

INTERNATIONAL equity and bond markets face a further test early next week, after the latest US jobs figures dimmed hopes of a springtime cut in US interest rates.

The US bond market lost ground heavily after the figures, which showed a strong 140,000 rise in the numbers in employment last month, well above market expectations of a 60,000 increase.

With the exception of the US bond market all major markets were closed yesterday when the figures were published.

But as it was the February jobs figures which pushed the Dow Jones index of US shares to a 17 point decline a month ago, the latest figures for March which underline the strength of the US economy are likely to lead to a weak opening in international markets after the holiday weekend.

The 140,000 increase in US non farm payrolls in March was well below the massive February rise, itself revised down from a 705,000 to 624,000. However the February increase was in part due to a bounce back from job losses in January due to the extreme winter conditions.

Last month's figure was still strong enough to upset the US bond market. Prices fell sharply pushing the yield or interest rate on the benchmark 30 year bond up from 6.66 per cent on Thursday to 6.84 per cent late yesterday, the highest level of US long term interest rates since August last year.

The bond markets have been upset by the signs of renewed, strength in the US economy because analysts now believe another reduction in interest rates is less likely, while there is also concern about a pick up in inflation. US producer and consumer inflation figures, due next week, will thus be closely monitored.

The US equity market is likely to open weakly on Monday, analysts forecast last night, as its gains over the past year have been based on lower interest rates and, strong bond markets.

The US Federal Reserve Board has cut interest rates three times since last July in a bid to boost growth. But last night US analysts were ruling out another reduction in interest rates this spring, with some believing that US rates are - not at their floor.

Despite the strong jobs market, separate figures published yesterday showed that the US unemployment rate edged up to 5.6 per cent last month from 5.5 per cent in February.

However, the jobs data paints a picture of economic strength. In the first three months of the year, the number of non farm jobs grew by an average 206,000 a month.

"Employment gains in the first three months of 1996 were greater, on average, than during most of 1995," Ms Katharine Abraham, commissioner of the department's Bureau of Labour Statistics, said in prepared remarks.

March job creation was entirely in the service producing sector, which gained 212,000 jobs, while the number of goods producing jobs fell by 72,000.