UNEMPLOYMENT in the United States fell rapidly last month add ing to fears that interest rate around the world are on the way backup.

The US unemployment rate plunged to 5.1 per cent in August the lowest in seven years - and the economy created 250,000 new jobs, - according to data released yesterday.

"This confirms the view that the world economy is not as weak as was generally thought," said Dr Dan McLaughlin, chief economist at Riada Stockbrokers.

"We can now see that the US is motoring along, German growth has picked up and Ireland, of course, if, growing rapidly. There is no doubt that US interest rates will rise, it just depends on when and who does it."

Mr Jim O'Leary, chief economist at Davy Stockbrokers also said the jobs numbers "shorten the odds" on a US rate rise. "The Fed will certainly be paying attention," he said.

The decline in the US unemployment rate was especially steep among workers over 55 and in their early 20s.

Ms Katherine Abraham, commissioner of the department's Bureau of Labour Statistics, attributed some of the jobless rate decline to statistical distortions in assessing the seasonal movement of unemployed youth. But she said other evidence suggested a genuine job market improvement.

Financial markets had been eagerly awaiting the department's monthly report to scour it for signs of whether the economy is heating up to the point that it could fuel inflationary pressures and prompt Federal Reserve policy makers to pre-emptively raise interest rates.

Some recent economic data had indicated a modest slowing, especially in the housing sector. But there is concern that it will not be enough to stop Fed policy makers from raising interest rates.

Last year, the consensus in the US was that unemployment at 6 per cent was consistent with stable prices. "The level may even have been 5.5 per cent," said Dr McLaughlin. "But you have to question whether inflation can hold with unemployment at 5.1 per cent."

He added that the Fed is likely to wait until its meeting on September 24th before raising rates. "The problem is that is the last meeting before the presidential election," he said.

"So it may not happen but in that case the market will simply push the long rates higher. That would lead to higher mortgages as most American mortgages are fixed on the 30-year yield."

Workers' average hourly earnings, which have been scrutinised more closely lately by traders for signs of wage-push pressure on prices, rose by 6 cents last month to $11.87 after falling 2 cents in July. Over the past year, hourly earnings rose 3.6 per cent form 3.1 per cent.

"Though erratic on a month-to-month basis, the rate of increase in hourly earnings has drifted upwards over the last several years," Ms Abraham said in testimony prepared for delivery to the congressional Joint Economic Committee.

Other commentators are worried that this could be the first sign of wage inflation in the US system.

"That's quite a negative development," said Mr Dan Seto, senior economist at Nikko Securities Co International Inc.