Markets Struck Down By US Jobs Report Jitters

World stock markets have dropped on the release of the latest US employment figures, seen as crucial in determining whether the Federal Reserve will raise interest rates this month.

The non-farm payrolls report, released on the first Friday of every month, showed the US economy added 173,000 net new jobs in August - below expectations.

However, the Labor Department said figures are traditionally revised sharply upwards because of weak reporting during the summer holidays.

The jobless rate fell to 5.1% - its lowest level since April 2008. Average weekly earnings rose by a stronger-than-forecast 0.3%.

US stocks fell almost 2% in the wake of the figures, as they were seen as supporting the possibility of a rate rise in two weeks' time when the Fed next meets.

Markets also dropped in Europe, with Britain's FTSE 100 closing down 151.18 points, or 2.4%, at 6,042.92 - leaving it down 3.3% for the week.

Retail stocks were among those hit after UK data showed August was the worst month for high street sales since the global financial crisis of 2008.

Germany's benchmark DAX share index fell 2.7% after industrial orders fell more than expected in July on lower foreign demand.

Matt Weller, senior market analyst at GAIN Capital (NYSE: GCAP - news) , said: "The most obvious implication of today's jobs report, which I would view as a net positive for the US economy, is that it leaves a September rate hike from the Federal Reserve on the table.

"So that potential for higher interest rates, even in the US, is something that is really hitting stock markets around the world."

The Fed has been watching closely for signs that wage rises are returning to some sort of health before raising rates.

It (Other OTC: ITGL - news) has previously given notice that an increase - the first since the financial crisis - should be expected this year.

But the International Monetary Fund (IMF) has been among world bodies suggesting the time for a rise may not be right, given the slowdown in China which has resulted in turmoil on the financial and commodity markets.

A weak US jobs report would have suggested that US confidence was being knocked by China's economic troubles.

While China's markets have been closed since Thursday for public holidays, stock markets across Asia were also gripped by nerves during Friday trading, with the Nikkei falling more than 2% in Japan.

The IMF was joined on Thursday by the European Central Bank (ECB) in warning about the wider impact of the market turbulence over China and its slowdown.

The bank's governing council cut its inflation and economic growth expectations and refused to rule out the prospect of more quantitative easing to support prices and activity.

China is also expected to offer more stimulus, raising further questions about whether the Fed has been right to signal that US rates would rise this year.