Footsie falls through 5,000 as recovery looks shaky

Published on Friday 2 October 2009 21:33

LONDON'S benchmark FTSE 100 index closed below the psychologically important 5,000 mark last night, following dreary economic data on both sides of the Atlantic.

Blue-chip shares were dragged down by worse-than-expected labour market figures from the US, where the unemployment rate hit a 26-year high of 9.8 per cent. The Footsie closed down 1.2 per cent at 4,988.7.

Employers in the US slashed 263,000 jobs in September, fuelling fears the weak labour market could impede the economy's recovery.

Oil prices fell following publication of the employment data, with crude for November delivery down $1.14 a barrel at $69.68 in New York in early trading.

The jobs figures also weighed heavily on the dollar, which slid against most major currencies.

After initial gains against the euro, the dollar fell back, although the currency did make some late gains against the yen.

Gold prices initially dipped following the US jobless data but then rose as investors retreated to the traditional safe havens.

Stuart Hoffman, chief economist at PNC Financial Services, said: "September was the payback month. I don't think it argues against a modest recovery in the US economy… but this is why we are not in a rapid recovery."

Gary Thayer, a strategist at Wells Fargo Advisors, added: "We're probably still on track for recovery, but it's going to take time. The trend is still improved from earlier this year, but employers need to feel more confident about the economy before they start hiring again."

In the UK, construction activity slowed again in September and at a faster pace than a month earlier. The Purchasing Managers' Index (PMI), compiled by the Chartered Institute of Purchasing and Supply (Cips) and Markit, fell to 46.7, its lowest level since June.

While the housing component of the PMI showed its first growth for 22 months, rising to 50.3 from 48.2, Cips said that the pace of contraction in commercial property and civil engineering had accelerated.

David Noble, Cips chief executive, said: "Though the industry is not contracting as quickly as it was earlier in the year, firms are struggling to adjust to comparatively low levels of activity, as reflected by employment levels, which took another hefty hit and have dropped consecutively for 16 months."

On Thursday, Cips reported the manufacturing PMI fell to 49.5 last month from 49.7 in August, surprising analysts who had forecast a rise to 50.3.