The US economy failed to create any private sector jobs in February, dealing a further blow to hopes that the labour market was on the road to recovery.

Total employment rose by just 21,000 last month, well below forecasts of about 150,000.

Even this modest job creation was entirely accounted for by an increase in 21,000 government jobs, without which the rate would have been zero, raising questions about the sustainability of America's economic recovery.

The figures will be alarming for US president Mr George Bush, who this week geared up his campaign for re-election in November.

The sluggishness of the labour market has become a campaigning tool for Senator John Kerry, the de facto Democrat nominee for the presidency.

With just seven payroll releases remaining before votes are cast, the administration is under increasing pressure to demonstrate that its economic policies have helped create jobs.

Mr John Snow, the US treasury secretary, said the fundamentals were still in place for a strong recovery. "The administration is not satisfied with today's job creation numbers," he said.

Financial markets reacted swiftly to the disappointing data, pushing the dollar lower against the euro.

The yield on 10-year US treasury bonds fell 18 basis points to 3.83 per cent as investors questioned their belief that interest rates would rise in the summer in response to stronger growth.

Even bullish economists failed to find much good news in the data. January's employment creation rate of 112,000, which disappointed many analysts, was revised still lower to 97,000.

Most of the job creation in February was in temporary positions, where there was a rise of 32,000. As a result, the US actually lost permanent positions.

With economists forecasting growth of about 4.5 per cent in the first three months of the year, the refusal of companies to hire new permanent workers has surprised commentators. - (Financial Times Service)