The likelihood of a further cut in American interest rates next month increased as employment figures released yesterday showed the first fall in jobs for 4 years.

Employers in the United States cut 17,000 jobs overall in January, compared with the average forecast by analysts of a 70,000 gain, as the sub-prime mortgage crisis fed directly into the building industry and had a knock-on effect on manufacturing, according to the US Labour Department.

The number of construction jobs dropped by 27,000. Manufacturers cut 28,000 posts as falling house prices and the credit crunch knocked the confidence and ability of consumers to buy products.

Government payrolls shrank by 18,000.

Ian Shepherdson, chief US economist at High Frequency, the research firm, described the job losses as a “real sucker punch”.

Ethan Harris, chief US economist at Lehman Brothers, said: “We were likely to get another rate cut, but this data adds to the case. It confirms that we have a very weak economy with the risk of a recession. The broad-based weakness is disturbing.”

The US Federal Reserve imposed an emergency three-quarter-point cut in the cost of borrowing to 3.5 per cent on January 22, then reduced the rate by a further half-point at its scheduled meeting eight days later.

Mr Harris predicted that the Fed would knock off a half-point at its next meeting, on March 18, and a further quarter-point at each of the following two scheduled meetings, taking America's base rate to 2 per cent.

By that point, the $100 billion (£50.8 billion) of tax rebates that have been proposed as part of President Bush's economic stimulus package may have started to kick in, allowing the Fed to stop lowering rates for the time being, Mr Harris said.

The reductions in non-farm payrolls in January, which exclude the highly seasonal farming labour market, came after a revised gain of 82,000 new jobs in December compared with the 64,000 increase originally calculated.

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