Stocks take a beating Friday

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NEW YORK -- Wall Street and the Treasury market ended the first week of 2007 with sharp losses Friday after a surprising surge in new jobs and wages diminished investors' hopes for an interest rate cut.

The markets shuddered at the Labor Department's report that U.S. employers increased their payrolls by 167,000 in December and boosted workers' hourly wages by 0.5%. The unemployment rate, meanwhile, held steady at a historically low 4.5%.

The report suggests the economy won't be slowing as much as investors anticipated -- news that should prove positive for stocks in the long-term, but which raised concerns Friday that the Federal Reserve might use it as a reason to raise interest rates. A rise in rates could crimp consumer spending, and further weaken the housing market by making mortgages pricier.

At this point, though, economists see policy makers keeping rates steady.

"Until we get an uptick in the unemployment rate, in this environment the Fed will probably stay in a holding pattern," said Commonfund chief economist Michael Strauss, pointing to the slowing, but still expanding, economy. "Moderate economic growth is historically good for the equity market, not a bad thing," he said.

Concerns about the jobs report added to disappointment over a warning by Motorola Inc. that the cell-phone maker is lowering its fourth-quarter sales estimates, as well as a series of analyst downgrades of technology companies.

The Dow Jones industrial average fell 82.68, or 0.66%, to 12,398.01 -- the biggest one-day drop since Nov. 27. The Dow had sunk by more than 115 points in earlier trading Friday.

Broader stock indexes also fell. The Standard & Poor's 500 index dipped 8.63, or 0.61%, to 1,409.71, and the technology-laden Nasdaq composite index dropped 19.18, or 0.78%, to 2,434.25.

Prices plummeted in the Treasury market, driving up the yield on the benchmark 10-year Treasury note to 4.65 from 4.61% late Thursday. The 10-year yield had touched 4.70% earlier Friday immediately following the jobs report.
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