Much worse-than-feared US employment figures yesterday provided further persuasive evidence that the world's largest economy is in recession, but Wall Street reacted calmly because the data fuelled hopes of more big cuts in American interest rates.

The Labour Department said US non-farm payrolls, the key measure of American employment, fell by a seasonally-adjusted 80,000 in March. This fall was 20,000 greater than forecast.

To make matters worse, February's fall in payrolls was revised from 63,000 to 76,000 and the January drop hiked from 22,000 to 76,000. The March drop was the third consecutive monthly contraction in US payrolls since 2003.

The US unemployment rate jumped from 4.8% in February to 5.1% in March - the highest since September 2005. Massive default on mortgages by US households with poorer credit ratings served by the sub-prime sector have triggered a wider US housing market slump and global credit crisis which are weighing heavily on the world's largest economy.

US consumer spending has been hammered amid these troubles. The US retail sector shed 12,000 jobs in March, yesterday's data showed, having lost an upwardly-revised 47,000 in February and 16,000 in January. The manufacturing sector shed 48,000 jobs in March and construction employment was slashed by 51,000.

Wall Street might have been expected to sell off sharply following the bleak employment figures, which were released before the opening bell.

However, it opened steady and then rallied on hopes that the employment figures would force the Federal Reserve to cut US interest rates significantly further.

The US central bank has already slashed its benchmark Fed funds rate from 5.25% last September to 2.25%.

With Wall Street in solid form when the London stock market closed for the weekend, the UK's FTSE-100 index of leading shares was able to finish 55.8 points higher on the session at 5947.1.

The US stock market slipped later but this appeared to be mainly on the back of ratings agency Fitch downgrading the financial strength rating of bond insurer MBIA from "AAA" to "AA".

Financial markets have for months fretted that a downgrading of the ratings of big "monoline" insurers such as MBIA could trigger further heavy writedowns by the banks around the world with exposure to these specialist firms. Even with the MBIA news, New York's Dow Jones Industrial Average finished down only 16.61 points on the session at 12,609.42.

Paul Ashworth, North American-based economist at Capital Economics, said: "In case any more confirmation were needed that the US economy is in recession, no-farm payroll employment fell by 80,000 in March. Moreover, following a net 67,000 increase to the losses in the first two months of the year, payrolls have now been falling at that pace for three months in a row." He added: "Overall, the weak jobs figures support our view that the Fed will be forced to continue cutting interest rates to prevent the recession from becoming a severe one. We expect rates to be slashed to only 1.0% later this year.