THE much larger than expected increase in the US non farm payroll for May, inducing fears that economic activity in the US is picking up faster than economists and market observers had expected, produced another severe setback in London's equity market yesterday.
The payroll report triggered immediate worries that US interest rates may be set to rise, choking off growth in the US and helping to stall economic recovery across Europe and the rest of the world.
Wall Street's initial response saw the Dow Jones Industrial Average plunge over 70 points, demolishing the fragile recovery in British stocks that followed the surprise cut in domestic interest rates on Thursday.
The cut in British rates was viewed by many observers as politically inspired and another indicator that a general election may be closer than previously expected.
Equally alarming for the market was the initial slump in US Treasury bonds, which fell around two points, and which unhinged the gilts market, where the 10 year gilt ended around three quarters of a point lower and the 20 year gilt just short of a point lower.
The news from the US saw British shares tumble and the FTSE 100 index slide below the 3,700 level before stabilising in line with Wall Street.
