Stocks ended another volatile week with a sharp selloff on Friday amid worries about credit markets and a weakening economy.
"Bears have control over the tape in the short term," said Alec Young, equity market strategist at Standard & Poor's. "There's concern about the rising cost of capital and widening credit spreads. Investors are repricing risk and taking the stock market down a peg or two."
The Dow Jones Industrial Average declined by more than 280 points as selling pressure increased steadily throughout Friday's session. The S&P 500 fell 2.7% while the Nasdaq Composite declined 2.5%.
The Dow recorded a weekly loss of 0.6%. The blue chip index is now more than 800 points below its July 19 record close of 14,000.41. The S&P 500 fell 1.8% for the week while the Nasdaq ended the week down 2.0%.
Trading curbs went into effect at the NYSE with about 30 minutes left in the trading session. It was the third time in two weeks downside curbs have gone into effect on the NYSE.
The Institute for Supply Management's non-manufacturing index, a measure of the vast U.S. services sector, fell to 55.8, below what economists on average had forecast, while the monthly employment figures also came in below consensus.
"The ISM was what sold the market off this morning and its been a slow drip up since then," said Dan McMahon, head of listed trading, CIBC World Markets. "Credit markets are worse today than they have been in a long time. You have some selective buying in groups that people think have limited exposure but the financials are really underperforming."
The Labor Department said U.S. employers added 92,000 non-farm jobs in July, fewer than the 130,000 analysts had forecast. The unemployment rate also unexpectedly rose to 4.6%.
"A lot of people were expecting a much better number than what came out," said David Henderson, president of Raven Securities. "We're in a very volatile stage now until the credit markets can really straighten out."
Treasury yields fell on the economic data, sending prices higher.
Bear Stearnsshares traded lower after Standard & Poor's changed its rating outlook on the company to negative from stable, indicating there is a greater chance of a downgrade over the next two years. S&P said problems at some Bear Stearns hedge funds have the potential to hurt the company's performance for an extended period.
Breadth was negative during Friday's trading session with decliners outpacing gainers by a five-to-one margin. All 10 S&P economic sectors traded lower as utilities and financials led downside movers respective declines of 3.9% and 3.8%. Energy stocks were hit with losses of 3.5%.
Lehman Brothers, another big mortgage bond underwriter, saw shares sink 5%, while shares of Countrywide Financial , the largest U.S. mortgage lender, fell 4%.
Nearly 7,000 employees may lose their jobs as American Home Mortgage confirmed it is the latest company to feel the pain of the subprime mortgage-market fallout. The lender is expected to close most operations on Friday and seek bankruptcy protection.
"Three months ago when we started getting the subprime mortgage news, people thought it was only going to affect a limited number of companies," said Adam Tracy, director of listed trading at Thomas Weisel Partners. "They are starting to realize it's going to affect everyone and its impact on the market is bigger."
Dow component Procter & Gamble said its fiscal fourth-quarter profit rose 19% on sales growth and improved margins. Net income for the quarter rose to 67 cents a share, a penny higher than the 66 cents per share expected by analysts surveyed by Thomson Financial. Proctor & Gamble also confirmed its earnings guidance and authorized the repurchase of $24 billion to $30 billion in stock over the next three years.
Network Appliance moved sharply lower after the company said first-quarter revenue would likely come in below expectations, citing soft spending among corporate customers.
Shares of Boston Scientific moved lower after two firms downgraded the company's debt rating to junk.
Toyota said its quarterly profit jumped 32.3% to a record high for a quarter, bolstered by strong overseas sales and a weaker yen. Toyota is on track to overtake General Motors as the world's biggest automaker this year.
Weyerhaeuser said its second-quarter earnings tumbled due to higher costs and a weak U.S. housing market. The No. 2 U.S. timber and forest products company said net income fell to 15 cents a share, from $1.19 a share, a year earlier. Excluding charges and gains, Weyerhaeuser earned 48 cents a share. The results still topped consensus estimates of 39 cents a share, according to analysts polled by Thomson Financial.
New York light sweet crude futures turned lower to trade below $77 a barrel.
European Stocks Close Lower
European stocks moved lower after the release of employment data in the United States.
The London FTSE-100 , Paris CAC-40 and Frankfurt DAX all closed with losses of 1% or more.
Shares of Royal Bank of Scotland fell despite forecast-beating profit results for its first half of the year. In addition, the London-listed bank raised its dividend by 25%.
Allianz also did better than expected with a second-quarter profit of $2.9 billion, that's 6% lower than the same period last year, which was boosted by asset sales. Shares of the insurer were flat.
Also on the earnings front, British Airways posted a 28% rise in quarterly operating profit and Dutch supermarket group Ahold reported a 2% rise in second-quarter sales.
In other corporate news, Anglo American announced plans to sell its U.K. road building unit Tarmac, which analysts say could raise around $6 billion, Reuters reported. The miner also posted a 22% rise in first-half earnings, in line with expectations. Shares surged 2.9%.
Asian Markets Flat
Asian markets were mostly flat in the afternoon session Friday. South Korea finished over 1% higher but Japan and Australia reversed earlier gains to close almost flat as liquidity jitters lingered, spooking investors.
Tokyo's Nikkei 225 Average almost flat as cellphone makers such as TDK rose following industry leader Nokia's upbeat earnings results. But bank shares extended gains on renewed concern about the fallout from American Home Mortgage's closure.
South Korea's KOSPI advanced 1.25%, ending a turbulent week on a high note, as Shinhan Financial jumped a day after posting earnings that beat estimates, while POSCO surged after Moody's said it would consider a ratings upgrade. But Samsung Electronics erased earlier gains to end flat on market rumors about a fire at a flash memory chip plant, which helped boost rival Hynix Semiconductor.
Hong Kong stocks inched up following gains on Wall Street as fears of tighter credit conditions eased, but Bank of China came under pressure on concerns over its exposure to the subprime mortgage market.
China's Shanghai Composite Index hit an all-time high of 4,535.33 in heavy trade, as property firms soared on earnings prospects.