Shares in London, the rest of Europe and the United States went into sharp retreat today after shock US data showed the housing crisis and credit squeeze are starting to hit growth in the world’s biggest economy.

The dollar also tumbled as the US government reported the first fall in jobs for four years.

Against forecasts for an increase of 110,000 in the payroll numbers, the figures showed there had actually been a decline of 4,000 in August.

Economists were alarmed by the figures. Rob Carnell of ING in London described them as “downright awful”. “For those wishing to see some evidence of the impact of sub-prime on the broader macro-economy - look no further,” he said.

Figures yesterday from the Mortgage Bankers Association in the US showed the rate of home loans entering the repossessions process hit a record high in the second quarter after a surge in the number of failing mortgages.

You have to love Alan Greenspan’s response: “The human race has never found a way to confront bubbles”.