US unemployment rose towards a five-year high last week as employers cut staff in the face of a weakening global economy, sending American and British shares plunging.

The number of Americans claiming unemployment benefits for the first time increased by 15,000 to 444,000 in the week ended August 30, according to the US Labour Department.

It represented an increase on the previous week and contrasted with a consensus forecast by economists that the number would fall to 420,000.

The Dow Jones industrial average slumped by 344 points to 11,188 in New York while in London, the FTSE 100 of leading shares finished 137.6 points lower at 5,362.1.

Analysts pointed out that the weekly unemployment figures can be volatile. The four-week moving average of initial claims, a less volatile measure, fell from 441,250 to 438,000 last week, indicating a greater level of stability, they said.

However, the unexpected jump in unemployment disappointed investors, coming after three consecutive weeks of declining benefit claims.

Separately, the Labour Department reported that productivity, the amount of output for every hour of work, rose to an annualised rate of 4.3 per cent in the second quarter, one percentage point above consensus forecasts.

Analysts said the higher productivity was encouraging because it helps to keep a lid on inflation and would help to boost company profits.

Initial unemployment benefit claims have averaged at 378,000 so far this year, compared to 321,000 for all of 2007, according to the Labour Department, as US companies lay off staff or implement hiring freezes to cut costs in the wake of the housing crisis.

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