City progress hindered by disappointing US jobs data

US employers cut a worse than expected 125,000 jobs in June compounding investor nerves after a flurry of worrying signs for the recovery in recent days.

US private payrolls rose only modestly in June and overall employment fell for the first time this year as thousands of temporary census jobs ended, showing the economic recovery failing to gain traction.

Private hiring rose 83,000 after increasing only 33,000 the prior month, the Labor Department said yesterday, far short of what would be needed to bring down unemployment.

Total nonfarm employment actually dropped 125,000 – the largest decline since October – as the government laid off 225,000 temporary census workers.

The Dow Jones Industrial Average fell more than 80 points and pared back gains on the FTSE 100, which eased from a rise of more than 1 per cent at one stage to close up 32.34 points at 4838.09.

The dollar was suffering a second very difficult session amid the concern on America's economy, with the pound up again to 1.52 dollars.

The euro also strengthened, reaching a six-week high against the dollar.

UK markets were given a much-needed boost after a tax climbdown from the Australian government buoyed miners.

The heavyweight sector cheered on news that the harsh super-tax proposals of deposed former prime minister Kevin Rudd would be replaced by a softer regime.

Xstrata was one the best performers, gaining 251/4p to 8711/8p.

Elsewhere among commodity stocks, oil and gas firm Cairn Energy rose 203/4p to 4221/8p as brokers at Canaccord lifted their target price and said the prospector's Greenland operations could transform the group.

Another stock benefiting from positive broker comment was engineering and aerospace giant Rolls-Royce, which Investec upgraded to a "buy" after praising its defensive qualities. The firm added 12p to 547p.

Banks were also making modest gains as the funding fears prevalent earlier in the week eased slightly, leaving Barclays 115/8p up at 267p and Lloyds Banking Group 21/2p better at 543/4p. Royal Bank of Scotland, which announced the sale of its Indian retail and commercial banking operations to HSBC for a 63m premium to net asset value, was 5/8p up at 40p. HSBC ticked 1p up to 6001/8p.

Tesco rose 53/8p to stand at 3827/8p as it faced a showdown with investors over pay plans at Sir Terry Leahy's last annual meeting before he steps down next March.

More than a third of investors protested at the supermarket's remuneration report amid concerns over rising rewards for the boss of Tesco's loss-making US chain Fresh & Easy.

Among the Footsie fallers, mobile phone giant Vodafone was one of the biggest casualties, losing 17/8p to 1361/2p as defensive stocks lost some appeal.

In the FTSE 250, Dana Petroleum was the biggest gainer, up 22 per cent, or 263p, to stand at 1440p after a 1.5bn takeover approach from South Korea's national oil company.

And there was more takeover interest surrounding England cricket sponsor Brit Insurance, which added 121/2p to 900p after the firm rejected a second proposal from private equity firm Apollo worth 824m.

Another strong performer in the second tier was builders' merchant Travis Perkins, which added 451/2p to 7541/2p after flagging up better than expected trading and a likely restart of dividend payouts.