The prospect of a US recession rose yesterday after new data revealed a sudden increase in unemployment and weak job creation in December, sending the dollar lower and equities sharply down.

The figures intensified pressure on the Federal Reserve to cut interest rates by at least 25 basis points, and possibly by 50 basis points, at its policy meeting this month to help sustain growth.

Shares were immediately hit by the data, which Goldman Sachs said suggested the US was "on the edge of recession".

The S&P 500 index was down 1.7 per cent at midday trading in the US.

Earlier, the Japanese Nikkei closed down 4 per cent, although Hong Kong closed up.

Only 18,000 jobs were added in December, the labour department reported, the lowest number since August 2003, and far less than the 70,000 predicted by economists.

Government hiring accounted for more than the entire increase, with private sector employment falling by 13,000.

Meanwhile, the unemployment rate jumped to 5 per cent, from 4.7 per cent, its highest level since November 2005.

While monthly labour market data can be volatile, the report suggests the US economy either stalled or came close to stalling in December. - ( Financial Times service)