Rise in dole claims shakes US confidence

The United States stockmarket tumbled yesterday as a rise in jobless claims dampened hopes about a key employment report due today.

Weakness in the job market is seen as the biggest obstacle to a rebound in the economy. The unexpected rise in first-time claims for unemployment benefits last week was the latest reminder a recovery will be difficult.

The report lowered expectations that the Government's closely watched January jobs report would show that employers added workers in the first month of the year.

More trouble for debt-plagued European Governments also spooked US investors, sending demand for safe-haven holdings like the dollar and Treasury bonds higher.

The Dow Jones industrial average fell 190 points, and other stock indices followed.

Claims for unemployment benefits rose by 8000 to 480,000 last week, the Labour Department said, disappointing investors who hoped for a drop. It was the fourth increase in five weeks.

The number of lost jobs was the highest in two months and upended a sense that claims would resume a decline that occurred in the northern autumn and early winter.

Analysts expect today's monthly jobs report - the most influential economic report on the calendar - to show employers added 5000 jobs in January, but also that the unemployment rate rose to 10.1 per cent from 10 per cent. The weekly jobless claims numbers had some wondering if the current estimates are too optimistic.

European markets also tumbled on concerns about onerous debt levels in countries including Greece, Spain and Portugal. The euro hit a seven-month low against the US dollar. That hurt demand for commodities, which are priced in dollars and become more expensive to foreign buyers when the dollar climbs.

The concern about jobs and finances in Europe overshadowed improvements in worker productivity and an increase in factory orders.

The bad news on employment and European government debt overshadowed pockets of better-than-expected sales reports from some US retailers.

Macy's raised its profit forecast after sales rose.

Manny Weintraub, president of Integre Advisers in New York, said the economy could not recover and the stockmarket would be unable to extend its 11-month run if consumers did not eventually start spending more. Improvements in unemployment would boost job seekers' confidence and could make those with jobs feel more at ease.

"That's the whole story. People feel if employment starts to improve you have a big multiplier effect."

In mid-morning trading, the Dow fell 192.19, or 1.9 per cent, to 10,078.36. The broader Standard & Poor's 500 fell 20.98, or 1.9 per cent, to 1076.30 and the Nasdaq slid 39.21, or 1.8 per cent, to 2151.70.

Bond prices rose, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 3.64 per cent from 3.71 per cent on Thursday.

- BLOOMBERG