Evidence that the American jobs market has ground to a halt fuelled fears yesterday that the world’s biggest economy is sliding into recession.

US Labour Department data showed that the number of new jobs available in December was the lowest for four years, driving the unemployment rate up to 5 per cent, a two-year high. The data unnerved Wall Street, triggering a 256-point fall in the Dow Jones industrial average, leaving the benchmark index down by about 3 per cent this year. Nasdaq, the index laden with technology stocks, fell nearly 4 per cent yesterday alone.

The employment figures rounded off a tough week on Wall Street when the price of oil hit $100 a barrel and Ford revealed that new car sales for last year were down by 24 per cent.

Adding to the gloom, S&P, the rating agency, yesterday said it might downgrade $6.5 billion (£3.2 billion) of securities backed by US sub-prime mortgages, which would lead to larger writedowns for Wall Street investment banks, key acquirors of such assets.

Total payrolls, including private and public sector jobs, grew by only 18,000 last month, the smallest rise since August 2003, when America was recovering from the 2001 recession.

Edward Lazear, President Bush’s chief economic adviser, said that the employment statistics were “low but mixed”, adding that “we had some good news in the sense that wages were strong”.

Mr Lazear hinted at tax cuts to pull the US economy from the brink of recession. “We are considering a variety of measures,” he said.

Ian Shepherdson, of High Frequency Economics, said: “[The figures] imply further declines ahead. The trend is clear. The Fed has to respond.”

Wall Street is expecting the Fed to cut interest rates again this month.

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