US companies axed more than half a million jobs last month in the worst slump in American employment since 1974.

Figures tonight showed employers cut 533,000 jobs in November, 200,000 more than analysts had expected, as the US economy headed for its worst recession since the Second World War.

"It's unbelievable," said Nariman Behravesh, chief economist at Global Insight in Massachusetts. "We're well on our way to the worst recession of the postwar period."

Wall Street and the City reacted with shock, the Dow falling 171.8 points to 8204.4 and the FTSE 100 95.4 to 4068.1.

There were also upward revisions to job losses in previous months, taking the total axed this year to two million. The US jobless rate is now 6.7% against 5.8% in the UK, and the figures are set to get worse as Wall Street banks' job losses filter through.

"You are seeing the impact of the lack of credit feeding through to a lot of companies, who are very fearful," said John Silvia, chief economist at Wachovia in North Carolina. "Consumer confidence is going to be bad. Personal income numbers will be awful. It is going to be a difficult winter for a lot of people."

Factory payrolls fell 85,000 while building jobs were down 82,000 and financial firms got rid of 32,000 staff.