The U.S. job growth was less than expected in August, with nonfarm payrolls increasing 169,000 in August, according to the Labor Department. Meanwhile, the unemployment rate dropped to a 4-1/2 year low to 7.3 percent as workers gave up the search for work.
Economists polled by Reuters had expected job gains of 180,000 last month and for the unemployment rate to hold steady at 7.4 percent.
The closely-watched jobs report provides a crucial piece of evidence for the Fed as it debates the future of its $85 billion per month bond-buying program. Policymakers from the U.S. central bank meet on Sept. 17-18 and had been widely expected to turn down the dial on the purchases they have been making to keep interest rates low and boost growth.
"The jobs report is demoralizing and sad to the unemployed, as well as the underemployed, as the ongoing quantitative easing program has provided only drops of octane to stimulate the labor market," said Todd Schoenberger, managing partner at LandColt Capital. "In addition, the uncertainty factor has been ratcheted up a notch as Wall Street received little closure with the ongoing 'Fed taper' argument."
U.S. Treasury bond prices rallied, pulling yields back from the edge of two year highs. Benchmark 10-year notes traded at 2.96 percent, after topping 3 percent in after-hours trade, for the first time in over two years.
Meanwhile, President Barack Obama faced growing pressure at the G-20 summit in St Petersburg to decide against launching military strikes in Syria. Russia's Vladimir Putin has called for the U.S. to provide evidence that chemical weapons were used by the Syrian government against its own people, and other world leaders have raised concerns about the impact of any military intervention on oil prices.
(Read more: Obama and Putin are 'odd couple' at G-20 summit)
Among earnings, Smithfield Foods posted quarterly earnings that dropped, hurt by lower exports to key international markets.
Shares of Apple will also be worth watching, on reports that it will unveil a cheaper iPhone next week, and that it is investigating fresh allegations into poor working conditions at a Chinese factory.