US companies hired workers at a blistering pace last month, according to fresh data which dashed hopes of early US interest rate cuts and prompted a sharp sell-off in the bond market.
The dollar surged, equities retreated and oil prices reversed an earlier slide after the US labour department reported that non-farm payrolls rose 167,000 in December.
The December jobs gain was the biggest increase in 2006, defying economists' predictions that the pace of hiring would slow. Wages also picked up, with a 4.2 per cent annual increase in average hourly earnings.
The report was a boost for the Federal Reserve in its tug-of-war with the bond market over the state of the US economy and the likely future path of interest rates.
Strong job creation and healthy wage gains reinforce the Fed view that the US economy is on track for a soft landing, in spite of the drag from housing and some weakness in manufacturing.
They also challenge the bond market's more pessimistic assumption that gathering economic weakness will force the Fed to cut interest rates.
US bond prices fell sharply following the release of the report, with the yield on the benchmark 10-year bond up 8.4 basis points to 4.69 per cent in the first hour. Short-term interest rate futures fell, bringing the implied odds of a 25 basis point cut by the end of the first half of this year to 25 per cent, down from 50 per cent before the data.
Al Hubbard, director of the White House national economic council, said the December jobs numbers showed the Fed had "gotten it right". Job creation was also stronger than previously thought in November, with an increase of 154,000, compared with earlier estimates of 132,000.
The economic data helped support the price of oil after sharp falls earlier this week. Oil prices steadied above $55 a barrel for Brent crude.
Adam Sieminski of Deutsche Bank said: "Oil has just finally caught up to the fact that people are in shirtsleeves in the US and Europe when it is supposed to be winter, and it has gone through resistance levels."
Opec offered no clear signal yesterday. Abdullah bin Hamad al-Attiyah, Qatar's oil minister, was reported by news agency Bloomberg as being "very concerned" about the fall in prices.
