FINANCIAL markets remain on edge, despite better than expected news from the US jobs market. The long awaited US employment figures, published yesterday, showed that fewer jobs were created in March than many commentators had predicted. However, the market focused on a big rise in hourly earnings of over 4 per cent, which has continued to feed fears of higher US inflation and interest rates.

The rise in hourly earnings was the largest since mid 1990, Mr John Beggs, chief economist at AIB pointed out.

"The figures should have had a positive effect on the market," he said. "But the hourly earnings point to a very strong trend and mean that the market is still expecting the Fed (Federal Reserve) to tighten rates again at the next meeting."

The US long bond weakened after the publication of the data with long term interest rates pointing to 7.12 per cent at the time the Irish market closed. Mr Beggs warned that the yield could rise as high as 7.25 per cent. "There is nothing to suggest we are going to see any change in direction in the US market in the short term", Mr Beggs warned.

The Dow also opened weaker at about a 70 point drop. However by the close it had recovered to close at 6,526.07, a gain of 48.72. As a result, the London and Dublin markets both trod water. The FTSE 100 closed 22 points higher at 4,236.6 while the Dublin market responded calmly and share prices rose fractionally. Most traders were still nervous of the direction of markets and will be looking ahead to the next Fed meeting.

The market is expecting European markets to remain under Wall Street's thrall over the next week. Dealers are nervous that another rise in interest rates in May may not be the end. Much will depend on the second quarter results from corporates as well as macro US economic data. Any sign of a slowdown in profits or of inflationary signals could result in a further sell off.

According to Mr Beggs, the employment data confirmed that growth was higher than 3 per cent, above the Fed's non inflationary growth target of 2.5 per cent.

The figures revealed that US unemployment has edged down to 5.2 per cent last month from 5.3 per cent in February as job growth slowed slightly.

The Labour Department said 175,000 non farm jobs were added to payrolls in March, fewer than the 293,000 that were created in February and slightly less than had been expected.

The closely watched hourly earnings average rose 0.4 per cent (or 5 cents) in March to $12.15 (£7.60) and was up 4 per cent year on year.

The percentage of workers who left their jobs voluntarily to seek better opportunities rose to 11 per cent of the work force in March from 10.9 in February. This statistic has been repeatedly cited by Federal Reserve board chairman, Mr Alan Greenspan, as a reliable indicator of the strength of the labour market.

The possible fall out from these figures is stronger for equity than bond markets. The latter may take the view that pre emptive action by the Fed is a "buy" signal.

In addition European bond markets are likely to pay close attention to this weekend's informal Ecofin meeting. Any statement about the start date for monetary union will be closely examined and enough bullish statements from ministers could prove helpful for the bond markets, according to Mr Beggs.

Equity markets on the other hand will be worried that a series of interest rate rises could hurt corporate earnings next year.

The one thing that could settle the market would be strong second quarter results. However, news that IBM, an important blue chip component of Dow, has been downgraded has done little for investors confidence. "If IBM disappoints the market, we could see the Dow fall a lot further," one dealer warned.

The immediate focus for the markets next week is likely to be US retail sales and the Producer Price Index next Friday. However, economists are not expecting much change in direction. Retail sales are likely to confirm the economy is expanding while it is unlikely the PPI will show any evidence of a pick up in inflation.

Core US inflation is currently running at around 2.5 per cent but it is generally accepted that this is overstated and that the adjusted core rate is closer to 1.5 per cent. However, economist Mr Nick Stamenkovic, of DKB International, warned that the risk was all on the up side.