Strong bonds in the US and European markets as new jobs figures bring relief

SHARE and bond prices in the US and Europe rose sharply yesterday as subdued US employment growth reduced fears that the Federal Reserve would raise interest rates later this month.

Wall Street investors welcomed figures from the Labour Department showing an increase in non farm employment of 193,000 last month, less than many economists had projected.

The jobless rate edged up to 5.4 per cent, from 5.3 per cent in June. Average earnings fell slightly, reducing worries about upward pressure on inflation.

By early afternoon the bench mark Treasury long bond was up 11/8 pushing the yield down to 6.735, the lowest since the end of May.

The Dow Jones Industrial Average rose 74.35 points to 5,669.10 in the afternoon and it finished at 5,679.83, up 85.08.

European bond and equity markets, which had been nervous ahead of the payroll data, rallied along with Wall Street. The ISEQ index of Irish shares rose by 31.88 points to 2485.94, a gain of 1.3 per cent. The main gain was among the financial stocks, reflecting the strength of the bond market.

In London the FTSE 100 index, 1.5 points ahead at 1 p.m., finished with a gain of 36.2 to 3,770.6. French and German stock markets rose by about 0.6 per cent, while Europe's best performer was Switzerland, which climbed 3.2 per cent as it celebrated the start of electronic trading. Government bonds rose by about half a point in Britain, Germany and France.

The jobs report was the latest in a series of figures to provide reassuring evidence that economic growth may be slowing after an uncomfortably buoyant second quarter. Economists said the figures meant the Fed would probably leave interest rates unchanged at its strategy meeting on August 20th and possibly for the rest of the year.

Analysts were encouraged by a reported fall in average hourly earnings, suggesting an easing of inflationary pressures in labour markets. A sharp gain in June had sparked fears that the Fed would have to tighten monetary policy to prevent upward pressure on wages.

Other indicators of inflation were also subdued. The Cycle Research Institute in New York said its leading index of inflation fell a full point last month, indicating "a cyclical upturn in inflation is not at all likely this year.