Stocks finished the week with a huge selloff as a surprise drop in U.S. jobs sparked worries that the economy is headed for a recession.
Investors were also concerned that the Federal Reserve won't be aggressive enough in cutting interest rates. Policymakers meet on Sept. 18 but many hope the Fed will cut rates sooner than that.
"(Fed Chairman Ben Bernanke is) an academic who has said throughout his tenure the Fed will base its decisions on the data but Bernanke is going to have to make judgment call like Greenspan and it's not data dependent," said Todd Clark, director of stock trading at Nollenberger Capital Partners. "That's why the market has been staying down today rather than bouncing back."
"One of the things confounding the market today is investor curiosity over why the Fed would wait until the 18th (of September) to do something," he added. "Anything shy of 50 basis points is going to be viewed negatively."
The Dow Jones Industrial Average posted a weekly loss of 1.8%, the S&P 500 fell 1.4% and the Nasdaq Composite declined 1.2%. The Dow, at its lowest levels since Aug. 28, is now 6.3% off its all-time record close on July 19.
For the year, the blue chip Dow index remains up 5.2% in 2007, the benchmark S&P 500 is up 2.5% and the Nasdaq has gained 6.2%.
The major indexes opened Friday sharply lower after the Labor Department said nonfarm payrolls fell by 4,000 in August, the first monthly decline since 2003.
"This, unfortunately, really just adds fuel to the fire on the downside here," said Jack Ablin, chief investment officer at Harris Private Bank. "It looks like we are going to have a recession, maybe a weak one, but a recession nonetheless."
Economists predicted that the economy would add 112,000 jobs last month, compared with 92,000 in July, according to a survey by Dow Jones. The unemployment rate was expected to remain flat at 4.6%. The Labor Department also revised jobs data for June and July downward.
"The risks have increased dramatically following today's employment report," said Richard Dekaser, chief economist at National City. "We're in the summer with the peak of subprime mortgage resets coming due ... the risks to the downside have increased tremendously."
Economists said that if the data showed a big rise in unemployment, an interest rate cut rate at the next meeting was a done deal.
"We think the Fed was probably on the fence … but this was the number Bernanke and the Fed need to get something done," said Phil Orlando, chief equity market strategist at Federated Investors.
Treasury prices rose sharply as investors flocked to safe-haven bonds following the weak employment data, pushing yields down.
In corporate news, Motorcycle maker Harley-Davidson cut its profit and motorcycle shipment projections, sending shares lower.
Beazer Homes USA saw shares plunge after the homebuilder said it received default notices related to senior notes from U.S. Bank, the trustee for the notes. Beazer, which faces a deteriorating U.S. housing market as well as two separate probes related to its mortgage-origination business, said it believes the default notices are "invalid and without merit."
A Congressionalconsumer affairs committee has called the head of Mattel for hearings on the recent toy recalls, the Wall Street Journal reported.
Shares of Apple saw further declines a day after the company offered iPhone's buyers a $100 rebate on top of lowering the price of the mobile handheld.
New York light sweet crude futures ended higher after an initial decline on the jobs data, but continued to trade above $76 a barrel. On Thursday, weekly inventory data showed a larger-than-expected decline in U.S. crude oil supplies.
Asian stocks closed mixed, while European stocks turned sharply lower after the U.S. jobs data was released.