Jobs Data Wallop Wall Street

Updated from 4:22 p.m. EDT

Stocks tumbled Friday after a government report showed the U.S. economy unexpectedly lost jobs last month, raising fears in some quarters of a recession.

The Dow Jones Industrial Average slumped 249.97 points, or 1.87%, to 13,113.38. The S&P 500 fell 25 points, or 1.69%, to 1453.55, and the Nasdaq Composite sank 48.62 points, or 1.86%, to 2565.70.

The U.S. economy gave up 4,000 jobs last month, according to a report from the Labor Department, the first decline in the nonfarm payrolls in four years. The figure was shockingly below economists' expectations for an addition of 100,000 nonfarm jobs. There was also a net downward revision of 81,000 jobs to the previous two months.

With credit market jitters still swirling, many now expect that the Federal Reserve will cut the fed funds rate at its Sept. 18 policy meeting, having kept the overnight target rate at 5.25% for the last nine meetings.

Over the last several weeks, Fed Chairman Ben Bernanke and his colleagues have offered clues that the central bank is willing to act if economic growth slows because of liquidity problems.

"I don't see any choice at this point for Ben Bernanke and the Fed," said Paul Mendelsohn, chief investment officer with Windham Financial. "This is a very horrendous, problematic number, even though it increases the chances of a Fed rate cut.

"This indicates we may already be going into a recession," he continued. "If the Fed doesn't cut rates here, the mess is going to get even worse. It's now a question about how many basis points the Fed will cut."