U.S. stock-index futures scaled back losses on Friday after the government reported the economy added 209,000 jobs last month and the jobless rate rose to 6.2 percent.
"The bottom line for employment reports these days is what it means for the Federal Reserve. With wage growth coming in less than expected and the unemployment rate ticking up one tenth, the Fed probably feels comfortable at this time with its stance," emailed Dan Greenhaus, chief strategist at BTIG.
"That said, one month is not a trend and the trend remains in place; job growth north of 200,000 is occurring more regularly and wage and inflation pressures should build over time. In that regard, today's report doesn't really advance the ball for either side," Greenhaus added.
Down 80 points ahead of the data, futures for the Dow stepped briefly in positive territory and were lately off 9 points.
The benchmark 10-year Treasury yield fell a basis point to 2.548 percent, down from 2.582 percent ahead of the employment report. Gold turned higher and the U.S. dollar held steady against other currencies.
In June, 288,000 jobs were created and the jobless rate stood at 6.1 percent.
Dallas Fed President Richard Fisher told CNBC on Friday that he believes the central bank could begin hiking interest rates early next year if the economic data continues to come in strong.
The benchmark notched up its largest fall in three-months of 2 percent on Thursday. The Dow and S&P 500 both closed at the lows, on volumes which were 30 percent higher than the 15-day moving average.
Traders cited a variety of reasons for the sell-off, including a jump in U.S. labor costs, concerns about Argentina's debt default and Europe's flagging economy.
Data on Thursday showed the U.S. Employment Cost Index (ECI) rose the most in more than five years in the second quarter.
Chris Weston, a trader at IG Markets, said he believed the key driver for markets was the jump in the ECI.
"When you see wage measurements such as the ECI moving up 0.7 percent in (the second quarter), it lends weight that the U.S. economy can handle a rise in short-term rates in the next couple of quarters. The 'lower for longer' trade comes under pressure," he said in a note on Friday.
Friday also brings the manufacturing ISM at 10 a.m., which is expected to indicate a slight further improvement in business conditions at the start of the third-quarter.
Losses in Asian markets were capped on Friday after China's official purchasing manager's index (PMI) rose to a better-than-expected 51.7 in July, better than the reading of 51 in June. HSBC's final July reading for July also came in at 51.7, an 18-month high.