Futures plunged after a report showed the unemployment shot up to a five-year high in August, adding anxiety to a market already jittery about the outlook for the economy.
Nonfarm payrolls fell by 84,000 in August, a bigger drop than the 75,000 expected. The unemployment rate jumped to 6.1 percent, the highest since September 2003, when economists had expected it to hold at 5.7 percent. Manufacturing shed 61,000, the most since July 2003.
This report followed a pair of disappointing readings on employment on Thursday: Initial jobless claims rose by 15,000 last week, snapping a three-week declining streak, and ADP payroll service reported that private employers cut 33,000 jobs from their payrolls in August.
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Merrill Lynch tumbled about 6 percent in premarket trading after Goldman Sachs cut its rating on the brokerage to "sell" widened its third-quarter loss forecast by $1 a share to $5.75.
Earlier, futures moved well off their morning lows as a spate of deal news boosted shares of several companies, pushing the Nasdaq tech composite to flat.
SanDisk soared about 24 percent premarket on news that South Korea's Samsung Electronics was looking at possibly taking over the world's largest flash memory card maker.
In other merger and acquisition news, Altria may be looking to add chewing tobacco to its products and is in advanced talks to buy UST, the maker of the popular Skoal and Copenhagen smokeless tobacco brands, for more than $10 billion, the New York Times reported. UST shares surged 17 percent premarket while Altria was off about 1.5 percent.
Nokia added to the selling pressure on techs after the world's top mobile-phone maker warned that its market share is going to take a hit in the third quarter amid softness in the global economy and tough competition. Analysts said Nokia hasn't been as aggressive with pricing as some of its competitors.
This followed profit warnings earlier in the week from networking-gear maker Ciena and Corning, the world's largest maker of glass for liquid-crystal displays for televisions and computers, as well as comments from the CEO of chip maker Qualcomm that the company is seeing signs of users slowing their cellphone upgrades.
Dell , which rattled the sector with disappointing results and a warning of a global slowdown last week, now says it plans to sell its computer factories around the world in order to cut costs and improve its profitability. Analysts said Dell's problem was that it cut prices too much in an attempt to grab — or buy — more market share.
And Pacific Investment Management, or Pimco, the manager of the world's biggest bond fund, named Mohamed El-Erian as its chief executive to replace Bill Thompson, who will retire at the end of the year.
Asian stocks got hammered, with Japan shedding 2.8 percent, while European markets extended their losses with banks falling after the European Central Bank said it would tighten rules for collateral at its liquidity actions.