American businesses cut payrolls by far more than expected in October, pushing unemployment to the highest level in 14 years and underlining the size of the task that Barack Obama faces in turning the economy around.

Dow Jones industrial average shot up 248.10 points, or 2.85 per cent, to end unofficially at 8,943.89, while the Standard & Poor’s 500 Index gained 25.87 points, or 2.86 per cent, to finish at 930.75.

Employers reduced payrolls by 240,000 in October, sending the national unemployment rate up from 6.1 per cent in September to 6.5 per cent, according to the Labour Department.

Economists had forecast 200,000 job losses in October, which would have taken the unemployment rate to 6.3 per cent. October’s job losses bring the tally this year to 1.2 million, of which 651,000 have come in the past three months.

President-elect Obama is due to hold his first news conference later today since winning the US presidency after a meeting with his economic team, as the world awaits signs of how he might tackle the economic crisis.

Markets are keen to learn who will become Mr Obama’s Treasury secretary but an aide said he would make no personnel announcements today.

Among those regarded as candidates for the job are Timothy Geithner, president of the Federal Reserve Bank of New York; Lawrence Summers, former Treasury Secretary; and Paul Volcker, former Federal Reserve Board chairman.

Commenting on the job losses, Richard DeKaser, chief economist for National City in Cleveland, said: "We have entered the phase of serious recession conditions. Unfortunately we will encounter more of this going forward.

"This is going to increase the urgency for another stimulus package to staunch the slide."

Some 90,000 of October’s job losses came in the manufacturing sector, with a further 108,000 falling in the service industries. Construction lost 49,000 jobs.

The report also showed that the average working week was unchanged at 33.6 hours. Average weekly hours worked by production workers were also unchanged at 40.6 and average overtime hours remained at 3.6.

Workers’ average hourly wages rose by $0.04, or 0.2 per cent, to $18.21 in October, from September. Hourly earnings were 3.5 per cent higher than in October 2007.

The gloomy employment figures came a day after the International Monetary Fund (IMF) predicted that developed economies are heading for their first collective contraction since the Second World War, with the US outlook for 2009 particularly poor.

The IMF predicted that the world’s developed economies would shrink by 0.3 per cent in 2009 and America will decline by 0.7 per cent.

That forecast marked a significant change of heart, coming less than a month after the organisation forecast that the US economy would grow by 0.1 per cent in 2009.

A summit set for Washington on November 14 and15 is expected to see leaders discuss new rules to avert a future economic crisis.

European leaders want the summit to herald fundamental change while President George Bush’s outgoing administration has taken a more cautious stance.

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