U.S. stock index futures pointed to a sharply lower open on Friday as traders digested nonfarm payrolls that missed on the headline number but beat expectations on key unemployment and wage indicators.
"I think the report is stronger than the headline. As a result it probably gives the Fed what it needs to raise rates in September but it also gives it cover if it decides not to," said Kate Warne, investment strategist at Edward Jones. "It does provide of evidence that the economy continues to improve."
Dow futures traded about 200 points lower. Earlier, the futures fell more than 275 points after initially trading in a range in the minutes after the report showed that 173,000 jobs were created, missing expectations of 220,000.
The unemployment fell more than expected to 5.1 percent, while average hourly wages increased more than expected by 0.3 percent.
Strategists said a decline in unemployment and an increase in wages could support the Fed's case for a rise in rates.
The dollar pared losses to turn positive, with the euro briefly below $1.11. The 2-year yield turned higher after traders digested the report, rising to 0.72 percent from 0.68 percent earlier. The 10-year yield briefly traded near 2.16 percent, up from 2.12 percent earlier.
Before the 8:30 a.m., ET, release, Dow futures held about 140 points lower after earlier slipping more than 170 points. The data is the final read on monthly labor conditions before the Federal Reserve makes a decision on interest rates at its next policy meeting in about two weeks.
U.S. stocks closed narrowly mixed Thursday, giving back sharp opening gains, as investors turned cautious ahead of the Friday morning report.
As well as factoring in the health of the U.S. economy, Fed policymakers have said they are also watching the impact of recent market volatility triggered by concerns over the economy in China.
Just prior to the release, Richmond Federal Reserve President Jeffrey Lacker—a known hawk—said at a breakfast the labor market no longer warrants zero rates. In a Reuters report he added that it is unlikely a weak unemployment report today would materially alter the labor picture or monetary policy outlook and that the biggest argument in favor of hiking rests on strengthening consumer spending.
In Europe, markets held sharply lower Friday, after the jobs report, with all major bourses down in excess of 1.5 percent.
Investors temporarily dismissed dovish comments from European Central Bank President Mario Draghi on Thursday.
Europe's declines mimicked Asian stock markets, which also moved lower on Friday as investors awaited the all-important jobs numbers. Mainland Chinese markets remained closed for a four-day weekend to commemorate the end of World War Two in Asia-Pacific.
In oil markets, the weekly Baker Hughes North American Rotary Rig Count, released today, will be in focus. Brent crude for October delivery fell 4 cents to $50.64 a barrel, while U.S. crude was down 18 cents at $46.57 a barrel.
There are no major earnings due on Friday.