Brighter picture on US jobs

AMERICA'S jobs market brightened in August - a crucial sign that the US recovery remains on track. Some 144,000 new non-farm jobs were created during the month while the jobless rate fell from 5.5% to 5.4%.

The market had been expecting it to remain unchanged at 5.5%. It was the third successive month that the jobs data fell shy of market forecasts.

Robert MacIntosh, chief economist, at Eaton Vance Management in Boston, said: 'The unemployment rate was down and that is something (President) Bush will want to talk about. Stocks will probably like it a little bit because it looks like companies are doing slightly better. Bonds shouldn't like it too much as its a little stronger than they had hoped. This gives the Federal Reserve more opportunity to tighten again in September.'

Tim Ghriskey, chief investment officer at Solaris Asset Management, said: 'The jobs number came out slightly below expectations but within striking distance of the expected number. We anticipate that this relatively benign news on the jobs front versus expectations will be greeted moderately positively by the financial markets.'

In London, where the figures are closely watched, gilt-edged stocks retreated as the jobs growth came in roughly as expected but higher than some had feared, cementing expectations for future Federal Reserve interest rate hikes.

The figures were strong enough to dispel worries that the labour situation was worsening after an extended period of softer economic data, but bond markets' reaction was muted, leaving the 10-year gilt yield at 5%.

Losses were tempered by an earlier report from the Halifax bank that showed house prices fell by 0.6% on the month in August, the first fall in two years and another sign the British property market has turned.

Meanwhile, a CIPS/Reuters report showed the UK service sector accelerated last month, the survey's headline activity index registering 56.9 against 56.2 in July.