December 5, 2009 in City

Investors see a downside to jobs

Tim Paradis Associated Press
 

NEW YORK – Investors grew more confident about the economy but also worried that a brighter employment picture will mean rising interest rates.

Stocks closed higher Friday but only after giving up much of their earlier gains. Indexes touched new highs for the year in the morning following news that job cuts fell sharply in November, but that report also brought expectations that the Federal Reserve could hike rates or remove other supports from the economy. Treasurys and gold fell as demand for safe-haven investments eased.

Jitters about interest rates left the Dow Jones industrial average with a gain of just 23 points, having been up as much as 151 points earlier. Stocks rose for the week.

The prospects of increased rates also led to a sharp rise in the dollar, which hurt prices for commodities, including oil.

The Labor Department said the economy shed 11,000 jobs last month, the smallest monthly loss since December 2007, when the recession began. That’s much better than the 130,000 losses Wall Street economists expected and an improvement from 111,000 jobs cuts in October.

The unemployment rate fell to 10 percent from a 26-year high of 10.2 percent in October. Economists had expected the rate to remain unchanged.

Stocks have been rising for nine months on hopes of a recovery, but investors have been worried that lingering unemployment would hold the economy back. The gains in stocks also come as the Fed’s policy of low interest rates and extraordinary supports for the financial system have flooded financial markets with cash. Investors are now on edge about how markets will respond when policymakers begin to withdraw some of those measures.

For the week, the Dow Jones U.S. Total Stock Market Index – which measures nearly all U.S.-based companies – ended at 11,231.20, up 183.08, or 1.7 percent.

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