ECB chief urges caution as unemployment worsens

Washington: US employers cut more jobs than expected in June, pushing the jobless rate to a 26-year peak on Thursday, and unemployment in Europe hit a 10-year high, dampening hopes of a quick recovery from recession.

Europe's central bank chief warned that although the downturn had eased, weak economic activity would hamper growth for the rest of the year and only a gradual recovery would emerge by mid-2010.

Data showed the US lost 467,000 jobs in June, more than 100,000 greater than expected by economists, breaking a four-month trend of moderation in job losses. "The job market is terrible. It's as bad as we've seen in our life-time," said Keith Hembre, chief economist at FAF Advisors in Minneapolis.

The unemployment rate rose to 9.5 per cent, the highest since a matching jobless rate in August 1983.

"It looks like the economy was still losing substantial momentum as the second quarter came to a close. This report is weak across the board," said William Sullivan, chief economist at JVB Financial Group in Florida.

Rising unemployment is emerging as the biggest challenge to recovery, which governments around the world are trying to stoke with record low interest rates and by pumping trillions of dollars into their economies.

In Europe, Central Bank President Jean-Claude Trichet cautioned about economic growth after the ECB left rates at one per cent as expected, a record low.

"Economic activity over the remainder of this year is expected to remain weak but should decline less strongly than was the case in the first quarter of 2009," he said.

The jobless rate in the 16-nation euro zone rose to 9.5 per cent in May from April's 9.3 per cent, the highest since 1999, data showed.

"May's sharp rise in euro zone unemployment demonstrates that the 'green shoots of recovery' are not yet showing up in the labour market," economist Martin van Vliet of ING said.