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ADP payrolls disappoint

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Traders quickly shifted some bets that Friday's jobs report will not be as strong as expected after ADP's private payrolls report showed only 189,000 private sector positions were added in March.

The dollar waffled and Treasury yields moved lower, as investors also assessed the potential impact on the Fed. The market has been expecting a first rate hike in September or later, and stronger jobs data could have shifted that view to an earlier date, like June. Crude also moved higher with the dollar, and stock futures initially erased some losses, but stocks opened sharply lower.

ADP was expected to report 225,000 jobs. Economists project 245,000 nonfarm payrolls in the government report Friday and an unemployment rate of 5.5 percent, according to Thomson Reuters.

"The (bond) market was doing OK ahead of that. There was a reversal from the end of month which had been negative for the long bond," said Ian Lyngen, senior Treasury strategist at CRT Capital. "The weaker ADP number does bring into question the assumption we're going to see another strong number on Friday."

Read MoreJob growth takes a step back in March

The ADP release was followed by a second disappointing report, this one on March manufacturing. The ISM manufacturing survey unexpectedly slipped to 51.5 from 52.5, and new orders and the employment component were both lower. The reports added to worries that the economic sluggishness of the first quarter may be more than weather related and could linger. Economists have been projecting a spring back in the second quarter

Traders also expect the anemic ADP report to bring down some economists' expectations for the Friday number.

Zane Brown, fixed income strategist at Lord Abbett, said the ADP report shows a clear lack of manufacturing hiring and that could signal the strong dollar has been taking a toll on U.S. exports and now labor.

"For large companies producing goods, it really suggests the dollar is influencing their willingness to hire as well as earnings," he said.

Stock fell with the down more than 140 points and the S&P 500 off nearly 15 at 2,053. The dollar index was initially higher but gave up some gains. Treasury yields were at the lowest point of the day, with the 10-year at 1.87 percent.

"There was some fallout in the energy and mining space, which stands to reason. It also means the setup for the Friday number, in the mid-200,000 range, could be a tad ambitious," said Mark Luschini, chief equity strategist at Janney Montgomery. "That said, it's sometimes a weak signal for the jobs number."

The currency market has been extremely sensitive to the pending jobs report, since a strong number could prompt speculation of an earlier rate hike. That would send the dollar higher.

"This number feeds into the fodder the Fed's going to have another reason to pause on the liftoff dates," said Luschini.