Fears about the health of the US economy were reignited on Friday after data showed that the unemployment rate spiked unexpectedly to 6.1 per cent - the highest in five years - as employers shed 84,000 positions in August, the eighth consecutive month of job losses.

The figures from the labour department were significantly worse than economists were expecting. Forecasts had on average predicted the unemployment rate would rise slightly to 5.8 per cent while the economy lost 75,000 jobs.

The surprisingly sharp deterioration in the labour market comes as a reminder of the difficulties confronting the US as it grapples with the housing crisis and sluggish consumer spending.

“The overall tone of the jobless report was weak and gaining momentum,” said Mike Materasso, co-chair of the fixed income policy committee at Franklin Templeton, the fund management group.

The report prompted further losses on equity markets. The Dow Jones industrial average was down 0.37 per cent, in morning trading in New York, while the S&P 500 fell 0.47 per cent.

The dollar eased 0.3 per cent to $1.4278 against the euro.

Treasury prices climbed amid the deteriorating economic outlook. The yield on the two-year Treasury note was 3 basis points lower at 2.15 per cent, while the 10-year Treasury note was also down 3 points, at 3.59 per cent.

Continued at Financial Times