Dow Plunges 360 Points as Oil Fans Fears

Stocks plunged as the sharpest jump in the unemployment rate in more than 20 years and rocketing oil prices sparked concerns about stagflation.

The Dow Jones Industrial Average fell more than 100 points, or 1 percent, in the first minute of trading, and was down 200-300 points the rest of the day.

The decline was severe enough to erase all of the prior session's rally and then some, leaving the Dow down nearly 400 points, or 3 percent, for the week.

This is likely the beginning of capitulation, said Bruce McCain, head of investment strategy at Key Private Bank in Cleveland.

"I think we were in a mood to be disappointed," McCain said. "That's part of the process."

Light, sweet crude oil was on another tear, soaring more than $11 a barrel and smashing the prior session's record jump of $5.49. Crude ended Friday at $138.54 a barrel, putting it up more than $11 for the week and up a whopping 40 percent since the start of the year.

The commodity was still reeling from comments from the ECB president that the central bank might raise European interest rates, as well as remarks from Israel's transport minister that an attack on Iranian nuclear sites appears "unavoidable" and a Morgan Stanley note that oil could hit $150 by the Fourth of July.

Energy stocks were a beacon in the market's sea of red, with Chevron the lone star rising on the Dow.

The employment report showed that U.S. employers cut jobs for a fifth straight month. Nonfarm payrolls shed 49,000 jobsin May, while the unemployment rate shot up to 5.5 percent from 5 percent in April, the biggest monthly jump since 1986.

The grim reading rippled through the market but economists sid the historically high jump in the unemployment rate was likely a statistical fluke as more teens and college graduates flooding the job market.

Still, the report "is further evidence of the increasing pressure on consumer spending, which is likely to revert to a very weak trend after the temporary benefit of tax rebates fades," Joshua Shapiro, chief U.S. economist at MFR Inc. wrote in a note to clients.

National Semiconductor shares jumped about 7 percent-- a rare feat on this landslide day -- after the chip maker reported a lower quarterly profit but blew past revenue expectations amid higher profit margins on its chips.

"Business conditions improved in the quarter and we were able to turn this into higher gross margins," CEO Brian Halla said in a statement.

Intel tumbled amid news that the chip maker is under investigation by the FTCfor antitrust violations.

In the financial sector, the Securities and Exchange Commission is investigating whether AIG overstated the value of contracts linked to subprime mortgages, according to a report in the Wall Street Journal. AIG shares tumbled.

Executives at Lehman Brothers are mulling a pre-announcement of the firm's second-quarter results in an effort to dispel market rumors that it is facing a liquidity crisis, people close to the investment bank told CNBC.

Lehman has traditionally released its earnings for the second quarter during the week of June 16, which is in two weeks. But people close to the company said executives are considering whether to move those earnings up, possibly to next week, when earnings are also expected from Morgan Stanley and Goldman Sachs .

On the Micro-hoo front, Carl Icahn sent yet another letter to Yahoo , trying to get Internet portal to agree to a deal with Microsoft . Icahn said Yahoo should pitch a $34.375-a-share price tag to Microsoft and if the software giant doesn't accept the offer in a "friendly and cooperative" manner, he would push for a Yahoo deal with Google .

Yahoo's shareholders don't meet until August 1, so this could go on for quite a while.

Still to Come:

FRIDAY: consumer credit; Fed's Evans, Bullard speak; Wal-Mart shareholders meeting

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