Stocks Slammed by Jobs and Oil

Major indexes ended Friday's session at their lowest levels since late '03. Next week's focus: the Fed's interest-rate policy meeting

Stocks finished Friday with steep losses following a glum employment report that raised worries that the economic recovery may be slowing.

The Dow Jones industrial average finished down 147.7 points, or 1.48%, to 9,815.33. The broader Standard & Poor's 500 index fell 16.73 points, or 1.55%, to 1,063.9.7. Both benchmarks posted their lowest closing levels in 8 months.

The tech-heavy Nasdaq composite was the worst performer among the major indexes, slumping 44.74 points, or 2.46%, to 1,776.89 -- its lowest closing level in 11 months. The index finished down more than 5% for the week.

The unemployment rate fell to 5.5% in July, but new job creation, at 32,000 in the month came nowhere close to the 240,000-plus additions to payrolls economists forecast. The Labor Department report also revised June jobs creation to 78,000, down from 112,000.

The disappointment in the employment market adds another layer of doubt -- on top of high oil prices, heightened terrorism risk, the Presidential election -- over the state of U.S. economic recovery.

While the Federal Reserve is still widely expected to proceed with a quarter-point rate hike at its Aug. 10 policy meeting, its stance may become more neutral as a result of the weak July jobs numbers.

The much weaker than expected job growth "won't take Tuesday's rate hike off the table, but all bets are off for the three remaining meetings over the rest of the year," says Mike Englund, chief economist of Action Economics.

Meantime, light crude oil closed at $43.95. Global shortage worries and uncertainty regarding the financial status of Russian oil giant Yukos have spurred the surge in energy prices.

Still, some analysts expressed optimism. According to Moody's Investor service. "There are reasons galore to suggest that July's negligible 32,000 worker addition to payrolls significantly understates the actual pace of jobs creation," write Moody's economists.

Market observer Don Luskin of TrendMacrolytics figures the reaction to oil and job worries is overdone and should be "reversed at least to some extent," as "improving political and monetary policy developments and deep undervaluation ought to be enough for a tradable move back up through the year-to-date range."

Among companies in the news Friday, Citigroup (C ) may make a 45 billion pound ($82 billion) bid for London-based Barclays, according to market speculation. Neither bank has commented on the rumor.

A new class-action suit says Halliburton (HAL ) the world's No. 2 oil field services company and several top executives practiced "serial accounting fraud" from 1998 to 2001.

On the tech front, chip designer Nvidia (NVDA ) posted a sharply lower quarterly profit amid a fell in graphics chips declined.

Trading in the upcoming week will be dominated by Tuesday's deliberations of the Federal Open Market Committee meeting. A quarter-point hike is likely, but traders will mull the Fed's comments on the economy, given the latest disappointing turn.

Next week brings more economic updates -- on June wholesale trade, mortgage applications, jobless claims, June business inventories, July producer price index and a preliminary read on the University of Michigan consumer sentiment index for August.

Among the major names on Monday's earnings calendar: Cablevision Systems (CVC ), Pacific Sunwear of California (PSUN ), Six Flags (PKS ), and Sotheby's Holdings (BID ).

Treasury Market

U.S. Treasuries soared in price on the second straight month of disappointing jobs data and increasing fears of prolonged weakness. The yield on the benchmark 10-year note plunged to 4.22%. Traders are now positioning for a neutral rate environment. The weak jobs report is expected to shift the Fed's attitude on interest rates.

World Markets

European stock markets finished with sharp losses amid the surprisingly weak job data in the U.S. and the continued specter of high oil prices.

London's Financial Times-Stock Exchange 100 index fell 75.5 points, or 1.71%, to 4,337.9, despite earlier gains in the banking sector. In Paris, the CAC 40 lost 94.34 points, or 2.6%, to 3,528.64. Germany's DAX index declined 94.34 points, or 2.6%, at 3,528.64.

Asian stock markets tumbled overnight on worries about stubbornly high oil prices. Japan's Nikkei 225 index fell 88.32 points, or 0.8%, to 10,972.57. In Hong Kong, the Hang Seng index fell 13.24 points, or 0.11%, 12,478.68.

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