Jobs Data Wallop Wall Street

Stocks tumble as a drop in payrolls raises fears of an economic slowdown. Treasuries surge.
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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."

Ian Shepherdson, chief economist with High Frequency Economics, said that one number is not a trend, but these data will scare the Fed into believing the worst is yet to come.

"

The Fed will ease 25 basis points on Sept. 18 but should ease 50," he said. "Remember, this report does not fully reflect the market turmoil."

Meanwhile, former Fed chief Alan Greenspan said there are many similarities between the current market situation and those of years when the stock market crumbled.

"The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987," said Greenspan, according to

The Wall Street Journal

.

"The jobs data are saying the Fed has to cut rates, but Greenspan has come out saying it's not going to make a difference," said Mendelsohn. "There is a commodity play developing, which shows that that side of the market expects a rate cut."

Treasury bonds rallied following the weak labor report. The 10-year rose 1-3/32 in price, cutting the yield to 4.37%. The 30-year note added 1-20/32 in price, yielding 4.70%.

Gold futures rose $5.10 to close at $709.70 an ounce, and silver jumped 22 cents to $12.76 an ounce. The dollar, meanwhile, sank against the world's major currencies.

On Thursday, the major averages finished with modest gains thanks to strong retail same-store sales data. The Dow advanced 57.88 points, or 0.44%, at 13,363.35, and the S&P 500 rose 6.26 points, or 0.43%, at 1478.55. The Nasdaq climbed 8.37 points, or 0.32%, to 2614.32.

For the week, the Dow slid 1.8%, the S&P 500 lost 1.4%, and the Nasdaq fell 1.2%.

On the

New York Stock Exchange

3.26 billion shares changed hands, as decliners topped advancers by a 3-to-1 margin. Volume on the Nasdaq reached 1.90 billion shares, with losers outpacing winners nearly 4 to 1.

Markets overseas fell hard, as well. The Paris CAC 40, London's FTSE 100 and Germany's Xetra Dax were down 1.9% or more. In Asia, Japan's Nikkei 225 eased 0.8% and Hong Kong's Hang Seng dipped 0.3%.

Elsewhere, the October front-month crude contract was up 42 cents at $76.72 a barrel.

Among equities,

Harley-Davidson

(HOG) - Get Report

cut its shipment targets due to weak sales. The motorcycle producer also reduced its earnings expectations for 2007 and 2008 while withdrawing guidance for 2009 altogether. Shares were down $5, or 9.2%, to $49.09.

Following the last close, homebuilder

Hovnanian

(HOV) - Get Report

posted a fiscal third-quarter loss of $80.5 million, or $1.27 a share. The loss was worse than expected, according to Thomson First Call. Hovnanian lost 81 cents, or 7.1%, to $10.56.

Fellow builder

Beazer Homes

(BZH) - Get Report

dropped 12.9% after word the company had received default notices for certain of its senior notes. The stock was off $1.41 to $9.50.