An unexpectedly large rise in US labour costs in the second quarter of the year was the main factor in a sharp fall in share prices on Wall Street yesterday. At one stage, the Dow Jones Industrial Average as down 258 points, over 2.5 per cent, before a modest recovery brought the Dow to a close of 10790.97, down 181.10, or 1.65 per cent on the day.

The employment cost index, a broad measure of labour costs including wages and benefit costs, rose 1.1 per cent in the second quarter. Economists polled by Reuters expected an increase of only 0.8 per cent, compared with the rise of 0.4 per cent in the previous report.

The view on stock markets is that the rise in labour costs has increased the prospect of a rise in US interest rates. Markets page 6