THE market's attention will be focused on key inflation figures from the US and Britain this week.

US data tomorrow will be closely watched following the release of much higher than expected job numbers on Friday.

Those figures sent the bond markets into a tailspin as analysts predicted that the US authorities would put up interest rates to keep inflation at hay.

"If inflation show signs of strength it will create concern about possible Fed tightening said Mr Mark Cliffe, chief international economist at HSBC Markets in London.

But the US authorities are playing down the link. Job creation is not a threat to low inflation, according to an official from the US Federal Reserve.

Mr William McDonough, president of the New York Federal Reserve, said yesterday that a surge in US job creation was positive for the American economy and did not pose a serious inflationary threat.

Mr McDonough also said the rise in US non farm payrolls in May showed the economy was continuing to expand and growth in the second quarter would probably exceed that in the first quarter.

"I think that these jobs data in and of themselves do not indicate a serious inflation threat," Mr McDonough said.

He said there wee no signs of overheating in the US economy and he expected the economy to slow down in the second half of the year after robust growth in the second quarter.

US real earnings, and later in the week, capacity utilisation and industrial production would also interest the fixed income market, analysts said.

Last Thursday's surprise interest rate cut by the Bank of England is also focusing the market's attention on key British data.

"The question is, will they validate the Chancellor's decision to cut rates?" said Mr Brian Hilliard, senior international economist at Societe Generale in London.

"The excuse for the cut has to be weaker manufacturing combined with confidence about inflation. We're looking for a fall in manufacturing output on the month," Mr Hilliard said.

"If you get a stronger figure, it would weaken the Chancellor's story," he added.

Analysts are also looking for a slight improvement in the May British producer price index, due today.

Industrial production and manufacturing output data for April are expected tomorrow, and the retail price index data is due on Thursday.