Stock markets fell sharply on both sides of the Atlantic yesterday as soaring unemployment in Europe and America inflamed investors’ fears that a strong recovery from recession will prove elusive.

Shares succumbed to a renewed battering in London, New York and on European bourses as official figures showed the jobless rate in both the US and eurozone surging to 9.5 per cent.

In the US, employers cut a further 467,000 jobs last month alone, the government non-farm payroll estimates showed. The fall was more than 100,000 greater than Wall Street had predicted, and broke a four-month trend of moderation in the scale of job losses.

The latest drastic cuts in the US workforce propelled America’s unemployment rate to its highest for 26 years as it hit 9.5 per cent, up from 9.4 per cent in May.

The news was little better on the other side of the Atlantic where the jobless rate reached its highest for a decade, since the foundation of the single currency in 1999.

The bleak developments from across the world’s biggest economies undercut burgeoning optimism over recovery prospects and fuelled anxiety that any upturn this year and next will be weak and hard to sustain.

Jean-Claude Trichet, President of the European Central Bank, sounded a new warning over the outlook as the ECB fulfilled market predictions and kept eurozone interest rates on hold again at 1 per cent, signalling that they are likely to remain there into next year. “Economic activity over the remainder of this year is expected to remain weak but should decline less strongly than was the case in the first quarter of 2009,” Mr Trichet said.

He confirmed that the ECB was pressing ahead with planned unconventional steps to try to kick-start eurozone growth with purchases of covered bonds aimed at injecting extra funds into the 16-nation economy.

Analysts said that the mood of the markets was shifting as more investors grew wary that a recovery from recession would prove lacklustre.

In London, the FTSE 100 index tumbled by 106.44 points, or 2.2 per cent, to close at 4,234.27, ending its first trading day of the new quarter on a sour note after its strong rally over the previous three months.

In New York, the Dow Jones industrial average and the broader-based S&P 500 index of US blue chips were both closed down by more than 2.5 per cent.

Some economists argued that the US jobs data was not quite as bad as the headline numbers suggested, noting that part of the worse than expected outcome came as 52,000 jobs went in the public sector, many of which were likely to have been temporary staff taken on by the US Census.

But most analysts said the figures could only emphasise that America’s unemployment queues were set to badly hamper an economic revival. A key concern was a further fall in the number of hours worked by those still in employment. Economists regard this as a key gauge of future jobs market trends.

Ian Shepherdson of High Frequency Economics, the analysts, said the spiralling jobless total was soon likely to trigger outright falls in wages across the economy — a sign that a deflationary threat was emerging.

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