Since March, nonfarm employers have cut 190,000 jobs, points out Joel Naroff, president of Naroff Economic Advisors. "While this is not huge, by any means, it is consistent with an economy that is in a deep funk," he wrote in a note to clients.
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A separate report showed weekly jobless claims rose by 16,000, and the four-week moving average climbed 11,250 to 390,500 claims.
In Japan, the Nikkei 225 average fell for an 11th straight session, the index's longest losing streak since 1953.
European stocks advanced in their most volatile session in three months after the European Central Bank raised a key European rate by a quarter percentage point to 4.25 percent.
The rate increase came as no surprise but the market was a little taken aback when ECB President Jean-Claude Trichet said he had "no bias" on monetary policy, which many interpreted as a signal that the ECB wasn't planning any further rate cuts in the near future.
While Europe took steps to curb inflation, U.S. Treasury Secretary Henry Paulson said on a European tour that the downturn in the U.S. economy is more worrisome than inflation right now.
The Fed has acted "outside of its real responsibilities in the past year," Steve Grasso, a broker at Stuart Frankel, said on CNBC, adding that it's had "catastrophic" results in the market.
"At this point, [the Fed has] got to focus on what [its] real job is, which is inflation," Frankel said.
Oil prices settled at a record $145.29 a barrel amid worries about the weak dollar and supply concerns. Energy stocks, however, once again decoupled with oil prices and the S&P energy index finished down half a percent.
General Motors shares bounced 1.4 percent after falling below $10 for the first time in more than 50 years during the prior session.
Lehman Brothers rose 2.2 percent in the beaten-down stock's third straight day of gains. News circulated this week that the firm plans to issue stock to its employees, in an attempt to encourage top talent to remain at the investment bank.
Technology stocks declined, led by semiconductors, after graphics-chip maker Nvidiaslashed its second-quarter outlook, citing weak global demand.
Nvidia shares plunged 31 percent , while the Philadelphia Stock Exchange semiconductor index ended off 1 percent.
Aetna slipped 6.7 percent after Goldman Sachs cut its rating on the stockto "sell" from "neutral."
British Airways is said to be close to seeking clearance from competition authorities for a three-way operational merger with AMR's American Airlines and Spanish Iberia, according to the Times of London and the Financial Times.
AMR shares gained 4.6 percent. Most other major carriers also ended higher, with the S&P airline index up 1.6 percent.
Alcoa was the biggest gainer on the Dow, advancing 2.1 percent, after Soleil upgraded its rating on the stock to "hold" from "sell," citing the stock's drop of 23 percent in the past five weeks compared with the S&P 500's 9.3-percent decline in the same period, and the rise in aluminum prices.
Earnings season kicks offnext Tuesday, which should give the market some much-needed direction.
Alcoa is first up, and is expected to show a profit decline, not surprisingly, as 30 to 40 percent of its cost to run its plans comes from energy.
Alcoa is "going to say that the marketplace and global economy is still slowing," Frankel said. "With $145-a-barrel oil, it's hard to get excited about growth. That's the hingepin there: We have to strengthen this dollar," he said.
Chevron and General Electric report later in the week.
S&P 500 earnings growth is now projected at minus 11.3 percent for the second quarter, according to Thomson Reuters, down from growth of 4.7 percent at the start of the year. That was largely due to downward revisions on estimates in the financial sector, including Citigroup and Merrill Lynch .
Next week is pretty light on the econ front but will shed some light on housing, with existing-home sales on Tuesday, and on the consumer, with monthly retail sales on Thursday and consumer sentiment on Friday.
We'll also hear from a couple of Fed officials throughout the week, including Fed chairman Ben Bernanke on Tuesday.
MONDAY: Fed's Yellen speaks
TUESDAY: Existing-home sales; wholesale trade; consumer credit; Fed's Bernanke, Lacker speak; Alcoa earnings
WEDNESDAY: Weekly mortgage applications; crude-inventories report
THURSDAY: Monthly retail sales; jobless claims; Fed's Yellon speaks; Marriott earnings; Chevron interim report
FRIDAY: Import/export prices; international trade; consumer sentiment; Treasury budget; GE earnings
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