Share prices soar as US employment rise cheers investors

Investors seized on news of an upturn in the US labour market to send share prices sharply higher yesterday, as they pinned their hopes on a swift economic recovery.

The keenly awaited non-farm payrolls report from the department of labour showed that seven months of continuous job losses came to an end in September and the unemployment rate stabilised at 6.1%.

Share prices jumped sharply on both sides of the Atlantic after the news with the FTSE 100 index in London closing 64.9 points higher at 4274.

By mid-morning in New York the Dow Jones index of leading shares was up 130 points at 9,619 and the technology-heavy Nasdaq had risen 2%, or 41 points, to 1,877. On the foreign exchange markets the dollar surged on the news pushing the euro down to $1.16.

"The report is a welcome surprise - good news for the US economy," said Larry Brickman, currency strategist at Banc of America Securities. An improvement in the labour market "is one of the last pieces to come about in the recovery and is one of the pieces of evidence for a stronger dollar going forward over the next few months", he added.

The 57,000 rise in non-farm payrolls was good news for President Bush, who has faced repeated criticism in recent months for the failure of his "jobs and growth" programme of tax cuts to boost employment. The department of labour also revised down its estimate of the number of jobs lost in August to 41,000 from an earlier estimate of 93,000.

The long-awaited return to job creation in the US economy was concentrated in the services sector, which hired 74,000 workers in September, while hard-pressed manufacturers continued to shed jobs, laying off another 29,000 workers in the month.

Underlining the positive mood in the US service sector, the monthly Institute for Supply Management survey showed activity expanding for the sixth successive month.

The ISM's business activity index slipped to 63.3 in September from 65.1 in August, but was still well above the score of 50 that divides expansion from contraction, signalling a healthy rate of growth.

However, the ISM's Ralph Kauffman said firms remained nervous about the durability of the US recovery. "Businesses in general are just very cautious," he said. "They worry that once the tax cut is spent people will stop spending." With the ISM's employment index still indicating layoffs, analysts said it was still too early to assume that the "jobless recovery" of the last few months has come to an end.

In the UK, news that the services sector is expanding at the fastest pace since April 2000 backed official figures earlier in the week which showed the economy heading for faster growth this year. The UK survey, prepared by the Chartered Institute of Purchasing and Supply, registered its strongest reading for more than three years, rising to 58.7, up from 57 in August. CIPS said an increase in new orders had helped firms feel more confident about their prospects - and service sector firms were taking on new workers.

Ross Walker, of Royal Bank of Scotland, said the strong CIPS reading suggested the economy may have expanded by as much as 0.8% in the third quarter of the year - a healthy bounce from the anaemic 0.2% seen in the first quarter.