A benign report on US labour costs gave Wall Street its best day in seven weeks yesterday as investors, who had been selling or staying on the sidelines, jumped back into the market in the belief that inflation is under control. The rally was solid and broad-based, but some analysts believed the wave of buying was an extreme reaction to fairly modest government data.

Stocks shot higher after the US Labor Department said its employment cost index rose by 0.8 per cent in the third quarter, slightly lower than the 0.9 per cent increase many economists were expecting. Economists view the index as a significant barometer of inflationary pressures.

In recent weeks, the market has been dominated by a debate over whether the US Federal Reserve will raise interest rates for the third time this year in its continuing effort to ward off inflation.

Traders said the employment cost index might not deter the Fed from implementing another rate hike when its policy-making Open Market Committee meets on November 16th.