The US unemployment rate fell to a 28-year low last month, pushing wage gains to their fastest rate of increase in 15 years. The jobless rate fell to a seasonally adjusted 4.3 per cent in April from 4.7 per cent in March, the US Labour Department said yesterday, as the economy created 262,000 jobs. But in a clear sign that the jobs expansion is steadily forcing wage demands higher, average hourly earnings rose by 4.4 per cent in the year to April, their fastest rate of increase since 1983.

The report raises the stakes for the Federal Reserve as it contemplates a thorny monetary policy dilemma. With the domestic economy now producing solid wage increases, and with no obvious sign yet of a dampening effect from the Asian financial crisis, the risks of delaying an increase in interest rates are rising sharply.

The US central bank's policy-making open market committee meets on May 19th and pressure for raising interest rates is certain to come from several members.

"This has to make the Fed more uncomfortable about inflationary pressures in the economy," said Mr Ronald Talley, chief economist with the WEFA Group, an economic forecaster.

But Mr Alan Greenspan, Federal Reserve chairman, has not yet indicated he feels a rate increase is justified. He and other officials believe the economy will slow in the next few months as a result of the Asian crisis.

They are also constrained by the fact that, in spite of the tightest labour markets in a generation and rising wage pressure, inflation at the producer - and consumer - price level is still dormant.

"The bad news on inflation is mounting, but there's still not enough there," said Mr Robert Brusca, chief US economist at Nikko Securities in New York. "To raise interest rates, the Fed needs a smoking gun, and it doesn't have it yet."

Financial markets seemed to share that view. At 1 p.m. yesterday, the Dow Jones Industrial Average was up 105 points at 9,081.

Bond prices also firmed as investors appeared to focus on the number of jobs created in the month, which analysts say is a more credible statistic.

The US economy created 262,000 jobs in April, roughly consistent with Wall Street predictions of an increase of 270,000 and in line with recent monthly averages.

Some economists pointed to other signs in the jobs report that could stay the Fed's hand. The sharp fall in unemployment last month was partly the result of an unexpected decline in the labour force; total job growth did not show a sharp rebound from a drop in March; and the overall pace of job gains has slowed.