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Markets rally after forecast-busting US jobs data

By Pan Pylas
AP Business Writer / February 3, 2012
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LONDON—Stocks spiked sharply higher on Friday after forecast-busting U.S. jobs figures reinforced hopes that the recovery in the world's largest economy is gathering pace at a time when other regions, notably Europe, may be heading back into recession.

Figures from the Labor Department showed that employers in the U.S. added 243,000 jobs in January. As well as being the highest in nine months, the gain was around 100,000 more than anticipated.

The advance also contributed to a fifth straight fall in the U.S. unemployment rate. At 8.3 percent, it's the lowest in three years.

The January jobs report was filled with other encouraging data and revisions. Hiring was widespread across many high-paying industries and pay increased, too.

"In terms of the broader outlook, one report does not a trend make but there is little doubt that U.S. economic data continues to surprise on the upside," said Dan Greenhaus, chief global strategist at BTIG.

"We'll have to wait until February's report to see if this continues but for now, the risk rally is clearly on and from an economic perspective, it is most certainly warranted," Greenhaus added.

In Europe, the FTSE 100 index of leading British shares closed 1.8 percent higher at 5,901.07 while Germany's DAX rose 1.7 percent to 6,766.67. The CAC-40 in France ended 1.5 percent higher at 3,427.92.

In the U.S., the Dow Jones industrial average was up 1.2 percent at 12,853 while the broader Standard & Poor's 500 index rose 1.3 percent to 1,343.

The dollar also garnered some strength from the jobs figures as traders scaled back their expectations that the Federal Reserve would be pumping more money into the economy, evidenced also by a fall in Treasuries. The euro was trading 0.2 percent lower at $1.3119 while the dollar was 0.4 percent higher at 76.59 yen.

Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., said the Fed would need more evidence before it is comfortable about the durability of the U.S. recovery, especially with the housing market still in a fragile state.

"It will take a series of repeat reports like today's to deliver meaningful improvements to the unemployment rate before the Fed will feel confident that any improvement in employment prospects will replace the need for it to massage yields lower," Wilkinson said.

Market sentiment has been fairly upbeat so far in 2012, partly on the back of a run of fairly strong U.S. economic data, which has convinced investors that the U.S. economy is over its soft patch from last summer.

A non-manufacturing sector survey from the Institute for Supply Management echoed the recent trend, with the main index jumping 3.8 points to 56.8, indicating its fastest pace of expansion in nearly a year.

"This is really good news for overall growth as areas outside of manufacturing cover about 80 percent of the private sector economy," said Jennifer Lee, senior economist at BMO Capital Markets. Following the data, BMO has upgraded its first quarter growth forecast for the U.S. to an annualized rate of 2.5 percent from 2.0 percent previously.

The state of the U.S. economy contrasts with that of Europe, which appears headed for recession.

Official figures showed retail sales in the 17-nation eurozone dropped 0.4 percent during December, in contrast to expectations for an increase of the same amount.The data reinforced expectations that the eurozone contracted during the fourth quarter of the year. Eurostat is due to publish its first estimate for the quarter on Feb. 15.

The focus on the U.S. has proved a welcome diversion for some traders from monitoring the daily grind of Europe's debt crisis, where much hinges on whether Greece can secure a deal with its private creditors, as is anticipated. A deal is expected soon, though that has been the official line for a few weeks.

Earlier in Asia, the picture was mixed.

Japan's Nikkei 225 index fell 0.5 percent to close at 8,831.93 but Hong Kong's Hang Seng ended marginally higher at 20,756.98.

Mainland Chinese shares extended gains fueled by news of fresh support for the farming and small-business sectors, with the benchmark Shanghai Composite Index rising 0.8 percent to 2,330.41 while the Shenzhen Composite Index added 1.5 percent to 878.29.

Oil markets were relatively subdued. Benchmark oil for March delivery was up 35 cents at $96.71 per barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.

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