US markets reverse gains

US stocks erased gains and the Standard and Poor's 500 Index extended its worst slump since 2009 as stronger-than-forecast growth in American jobs failed to ease concern the nation will slip into another recession and Europe's debt crisis will spread.

Treasuries trimmed losses and commodities erased gains.

The S&P 500 reversed an early 1.5 per cent rally and dropped 0.3 per cent to 1,196.89 at 10.09am in New York, with energy and technology companies leading declines.

Ten-year Treasury yields rose five basis points to 2.45 per cent after climbing as much as 12 points earlier. The SandP GSCI Index of commodities was little changed as lead and zinc tumbled more than 2.4 per cent.

The S&P 500 surged in the first five minutes of trading after the Labor Department said said payrolls increased 117,000 and the unemployment rate dipped to 9.1 per cent from 9.2 per cent in June. The latter, however, was mostly the result of people leaving the labour force. The index took less than 20 minutes to erase its gain and extend a global slump that has erased more than $4.5 trillion from the value of equities worldwide since July 26th.

Stock markets have been battered over the past week by worries over the slowing US and global economies and the deepening of the euro zone's debt crisis.

There was widespread demand for policymakers to beef up plans to tackle the euro zone's crisis and prevent the US economy in particular from sliding back into recession.

One investment firm called for a "shock and awe" approach in Europe, a reference to the US-led aerial assault on Iraq.

"The economic outlook is stressing investors to a great degree and sentiment is likely to remain extremely fragile," said Keith Bowman, equity analyst at Hargreaves Lansdown.

"The US economy has been slowing and is moving into a phase where we are going to see spending cuts enforced. Investors are concerned as to where future growth will come from with this backdrop of debt for so many governments."

China and Japan called for global cooperation and French president Nicolas Sarkozy was to discuss the financial markets with German chancellor Angela Merkel and Spanish prime minister Jose Luis Rodriguez Zapatero.

Apart from signs that the US and global economy are weakening - despite record low interest rates and the pumping of liquidity into the system - the focus was clearly on Europe, where bond yields in Spain and Italy have been blowing out, threatening the same kind of refinancing problems that have already smitten Greece, Ireland and Portugal.

The European Central Bank disappointed investors yesterday by buying Irish and Portuguese bonds but not Italian or Spanish.

"Would the ECB please get serious," Berenberg private bank said in a note. "We need a circuit breaker to stop the vicious circle in which fear feeds on fear."

The Swiss franc - which the Swiss central bank has tried to weaken this week - hovered near record highs against the euro and dollar, while the yen rose. Both are considered safe haven currencies.

The franc rose to a record high against the euro of 1.0710 francs in early Asian trade but retreated to 1.0881 in European dealing on fears of official action to weaken the currency.

"The Swiss National Bank is caught between a rock and a hard place. It's difficult to see the franc being anything but well bid in the current environment," said Jane Foley, senior currency strategist at Rabobank.

The ECB bought Portuguese and Irish government bonds, slightly easing pressure on Italian and other euro zone peripheral debt, which had earlier offered euro-era high premiums over less risky Germany.

But Italian 10-year government bond yields rose above their Spanish equivalent.

Italy has emerged as the market's major concern after a rescue deal that was intended to stop the spread of the crisis failed to convince investors it had the firepower to ease pressure on the vast Italian bond market.

US short-term interest-rate futures traders today brought forward bets for a 2013 Federal Reserve rate hike in the wake of the US data.

Futures traders were pricing in about a 32 per cent chance that the Fed will increase its key policy rate at its January 2013 meeting, a better-than-even chance of a March 2013 rate hike, and about a 98 per cent of move at its April 2013 meeting, Fed funds futures prices at CME Group Inc's Chicago Board of Trade showed.

Traders saw just a 12 per cent chance of a January 2013 increase before the report, and gave an April 2013 hike a likelihood of just about 50 per cent.

The Fed has targeted the rate at between zero and 0.25 per cent since December 2008.

Reuters, Bloomberg