A MODEST rise in first-quarter employment costs and lower orders for manufactured goods in March reported by the American government yesterday, triggered a powerful rally in US financial markets on hopes inflation risks were waning.
The Dow Jones industrial average posted its second biggest one-day point gain in history, climbing 179.01 to close at 6,962.03. The biggest point gain came on October 21st, 1987, two days after the Black Monday crash, when industrials rebounded 186.84 points.
The benchmark 30-year Treasury jumped more than 1 1/2 points and its yield, which moves in the opposite direction and affects rates on mortgages and other loans, fell to 6.98 per cent from 7.11 per cent on Monday.
The gains in the US benefited European markets late yesterday and are likely to lead to strong gains when markets open this morning.
Analysts said the reports suggested the US economy, while still expanding, might not be as close to overheating as feared. That might encourage Federal Reserve policy-makers to hold off on more interest rate rises in May.
The Labour Department said its Employment Cost Index showed that nearly flat costs for company-supplied benefits like health care between January and March offset higher wage and salary costs to restrain the index's increase to 0.6 per cent.
That was an improvement from a 0.8 per cent rise during last year's fourth quarter. The index measures combined wage and benefit rises that eventually get passed on in costs and so are a measure of potential price changes.
Separately, the Commerce Department said March orders for durable goods dropped 3 per cent to a seasonally adjusted $171.5 billion. It was the biggest monthly decline since a 3.6 per cent fall last August.
The reports ignited rallies in financial markets, muting concerns that the Fed might already be on a course of successive short-term interest-rate rises to curb demand.
The central bank's policy-setting Federal Open Market Committee raised rates by a quarter point on March 25th and meets again on May 20th.
