Updated from 4:06 p.m. EST

Stocks tumbled Friday after the government's latest jobs report showed that hiring was much slower than anticipated in December, fueling fears of a broad economic slowdown.

The Dow Jones Industrial Average sank 256.54 points, or 1.96%, to 12,800.18, and the S&P 500 lost 35.53 points, or 2.46%, at 1411.63.

The Nasdaq Composite plunged 98.03 points, or 3.77%, at 2504.65, its worst point decline in nearly a year. The tech-heavy index was pressured by hefty losses in tech giants Intel ( INTC), Apple ( AAPL), Dell ( DELL) and Oracle ( ORCL).

"Tech took a huge beating, as there's worry people won't have cash to buy these types of products," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "It's certainly overdone, and tech will do better as the year wears on. For now, this is extreme defensive positioning, which will give tech a challenging start to the year."

Each of the major averages finished the holiday-shortened week with their worst losses in several months. The Dow declined by 4.2% for the week, and the S&P 500 ended down 4.5%. The Nasdaq was the worst performer, sliding 6.4%.

The latest pullback came after the Labor Department reported that 18,000 jobs were added in December, well short of economists' expectation of 70,000. The unemployment rate jumped to 5% from 4.7% in November, surpassing forecasts of 4.8%. Average hourly earnings rose a greater-than-expected 0.4%.

"There is a huge sense of disappointment with this jobs number," said Kenny Landgraf, president of Kenjol Capital Management. "The jump in the unemployment rate combined with higher wages gives us a sense that the economy is indeed slowing down. The market believes the Federal Reserve is behind the curve, and now it remains to be seen if the Fed will step in front of this and cut between meetings."

Jason Pride, director of research with Haverford Investments, said the data fall in line with a midcycle slowdown, something the U.S. central bank may be comfortable with as long as inflation doesn't rise too rapidly.

"Because of where inflation is sitting, the Fed will be hesitant to react dramatically," he said. "This isn't necessarily a sign of recession, but the economy is running at a very slow pace. It's not the end of the world, but it's not favorable in the context of everything else going on."

The Fed will discuss interest rate policy at a two-day meeting at the end of the month. Earlier this week, minutes from the Federal Open Market Committee's Dec. 11 meeting showed that members were concerned about rising inflation as well as an "unfavorable feedback loop in which credit market conditions restrained economic growth further."

U.S. Treasury prices traded higher in the wake of the jobs data. The 10-year note climbed 8/32 in price, dropping the yield to 3.86%. The 30-year bond rose 1/32, yielding 4.36%.

"Treasury yields are coming down quickly, as there's more certainty now we're in an economic slowdown," Pride said. "The question now is about the magnitude of a slowdown."

Financial subsector indices were among the weakest of the day. The Amex Securities Broker/Dealer Index shed 3.9%, as Bear Stearns ( BSC), Merrill Lynch ( MER), Morgan Stanley ( MS) and Goldman Sachs ( GS) retreated.

Among other decliners, the Philadelphia Semiconductor Sector Index was down 4.7%, the S&P Retail Index sank 3.9%, and the Amex Airline Index was lower by 1.7%.

The weaker-than-anticipated report comes just day after the ADP report on employment said private payrolls exceeded forecasts with a rise of 40,000 in December. Stocks initially cheered the report but gave up their early gains to finish close to the unchanged mark Thursday.

Crude prices remained a focus for traders as oil hovered just below the $100-a-barrel mark. After hitting a record $100.09 a barrel during the previous session, crude finished down $1.27 to close at $97.91.

Gold futures also retreated but held near all-time highs at $865.70 an ounce. Silver was also lower, off 3 cents to $15.46 an ounce. The dollar tumbled against the euro and the yen after the jobs data.

Also on the economic docket, the Institute for Supply Management said its nonmanufacturing index dipped to a reading of 53.9 in December from 54.1 in November. The number came in above economists' projection of 53.5.

The report comes two days after the ISM manufacturing index showed a decline to 47.7 in December, indicating a contraction in the factory sector.

"Disappointing ISM manufacturing data suggests slowing economic activity," said Bill Stone, chief investment strategist with PNC Wealth Management. " The high prices paid component has market participants talking about stagflation."

In corporate news, Intel weighed on the Dow for a third straight session after JPMorgan Chase downgraded the chipmaker to neutral from overweight. The firm cited a slowdown in order rates. Shares were off 8.1% at $22.67.

Overseas markets were mostly lower. Japan's Nikkei 225 reopened after an extended holiday break and dropped 4%, while Hong Kong's Hang Seng rose 2.4%. Among European bourses, London's FTSE 100 slid 2%, and Germany's Xetra Dax was behind by 1.3%.

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