European shares close lower as US unemployment soars

European shares closed lower yesterday, after US jobless figures soared, and energy producers fell as crude prices slumped.

The FTSEurofirst 300 index of top European shares fell 0.3 per cent to close unofficially at 867.95 points. In the first full week of trading in 2009, it rose 1.3 per cent.

Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC-40 closed between 0.5 and 1.7 per cent lower.

US employers slashed payrolls by 524,000 in December, driving the unemployment rate to its highest level in almost 16 years, a government report showed, suggesting that the year-long recession was deepening. The figures were better than some forecasts, causing shares to rise initially.

"This is considerably better than the 750,000 we were forecasting," said Rob Carnell, chief international economist at ING. However, he pointed to revisions upwards for previous months.

Oil companies took most points off the index, as crude prices fell back four per cent to below $40 a barrel, partly on worries about economic weakness following the labour data. Total, ENI, BP and Royal Dutch Shell all fell between 1.7 and 2.9 per cent.

Banks declined, with Commerzbank down 11.5 per cent, as investors digested the high price, now including part nationalisation, that Germany's second-biggest lender was paying to buy rival Dresdner Bank.

Meanwhile global stocks fell while the dollar and bond prices rose yesterday after data showing deep US job losses in December underscored the toll the recession may take on corporate profits and the struggling economy.

Oil prices fell more than five per cent to below $40 a barrel at one point as a jump in the December unemployment rate to 7.2 per cent - the highest since January 1993 - deepened the already dark outlook for the consumer-driven US economy.

While payrolls were slashed a bit less than forecast, economists had expected a lower jobless rate of seven per cent.

Chevron Corp led a slide in energy shares on both sides of the Atlantic after it joined a growing list of companies issuing profit warnings.

US technology shares also took a beating, causing the Nasdaq to briefly wipe out year-to-date gains as such tech bellwethers as Apple Inc fell.

"We just keep seeing bad news. That's all we ever see," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio. "We really have to see the economy, housing show some type of life."

Shortly before 1 p.m., the Dow Jones industrial average fell 100.91 points, or 1.15 per cent, to 8,641.55. The Standard & Poor's 500 Index slipped 13.80 points, or 1.52 per cent, at 895.93. The Nasdaq Composite Index shed 30.69 points, or 1.90 per cent, at 1,586.32.

Chevron stock fell 1.4 per cent, while Apple shares shed 1.9 per cent.

In Europe, the FTSEurofirst 300 index of top shares fell 0.5 per cent to close at 866.95 points, ending the first full week of trading in 2009 with a 1.2 per cent gain.

US and eurozone government debt prices rose after the dismal US jobs report, and grim European manufacturing data for November signalled the region is also sinking further into recession.

Expectations the tough employment environment will mean a very large government stimulus package and a vast issuance of new government debt reined in US price gains.

"The severity of the decline (in payrolls) indicates that government is going to step up spending, which is going to keep deficits very high," said Mary Ann Hurley, vice president of fixed-income trading at DA Davidson & Co in Seattle.

The benchmark 10-year US Treasury note US10YT=RR rose 23/32 to yield 2.36 per cent and the 2-year US Treasury note US2YT=RR gained 5/32 in price to yield 0.76 per cent.

Oil prices fell. US light sweet crude oil was down $1.55 to $40.15 a barrel.

The dollar rallied in volatile trading, with investors relieved that the US jobs report was not as dismal as many had feared.