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NEW YORK — Stocks lost ground Friday after the government’s much-anticipated employment report showed weaker-than-expected job growth and a rise in the unemployment rate. The major indexes each fell more than 1%, including the Dow Jones industrial average, which lost more than 150 points.
The Labor Department’s report employers raised payrolls by only 18,000 and that the nation’s unemployment rate rose to its highest level since November 2005 unnerved investors worried that a weakening job market will hurt consumer spending.
A better-than-expected economic reading on the nation’s service sector briefly pulled stocks off their lows but wasn’t enough to shake investors’ concerns.
Investors had been awaiting the jobs report for weeks as they tried to determine whether the economy would continue to benefit from robust consumer spending even as sectors like home construction, mortgage writing and manufacturing slow. Wall Street is concerned that areas of weakness could puncture growth and even tip the economy into recession if consumers can’t depend on a solid job market.
Manufacturers, construction companies and financial services companies all cut jobs during the month amid an anemic housing market. Retailers also made reductions.
The December report showed employers added the fewest jobs to their payrolls since August 2003. Economists had predicted a jobs growth figure of about 70,000 and an unemployment rate of 4.8%. Instead, unemployment climbed to 5% in December from 4.7% in November. While 5% unemployment is still considered good by historical standards, the increase from November clearly made some investors nervous.
“It’s a scary number, no question about it. No matter how good you wanted to feel about the economy averting a recession there is far less conviction than even two or three days ago,” said Joe Balestrino, senior portfolio manager at Federated Investors.
In midday trading, the Dow, which had been down more than 200 points, was off 133.80, or 1.02%, at 12,922.92.
Broader stock indicators also fell. The Standard & Poor’s 500 index declined 18.53, or 1.28%, to 1,428.63. The technology-focused Nasdaq composite index fell 58.10, or 2.23%, to 2,544.58, in part after an analyst downgrade of Intel Corp.
Small-capitalization companies also fell. Investors often view smaller companies, without the benefit of sizable overseas operations, for example, as less likely to fare well in an economic slowdown. The Russell 2000 index of smaller companies fell 13.85, or 1.86%, to 731.16.
Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 673.2 million shares.
Bond prices rose as investors sought the safety of government-backed debt after the employment reading. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.86% from 3.89% late Thursday. The dollar was mixed against other major currencies. Gold prices, which have risen to nearly 30-year highs in recent days, declined.
Light, sweet crude fell $1.73 to $97.45 on the New York Mercantile Exchange. Oil touched $100 per barrel this week for the first time, stirring concerns about inflation.
The employment figures overshadowed a report from the Institute for Supply Management, a business group, which said its December index of non-manufacturing activity showed the nation’s service sector grew in December. However, the pace was slightly slower than in November and the index fell to 53.9 in December from 54.1 the prior month. Analysts had expected a further decline.
“It’s hard to point to any piece of data in recent weeks that makes you feel comfortable,” said Balestrino, noting that many bullish investors had hoped a strong jobs picture would lift Wall Street’s mood.
“This the one piece that was holding up pretty well and now it’s showing some weakness as well,” he said. “In our business it’s not the absolute number, it’s the direction of the number and especially the direction versus the expectations.”
In corporate news, a JPMorgan analyst lowered his rating on Intel to “neutral” from “overweight,” citing a drop in chip orders from computer manufacturers during the fourth quarter and high inventories. Intel, one of the 30 stocks that comprise the Dow industrials, fell $1.65, or 6.7%, to $23.02.
Another chip stock, Micrel Inc. fell $1.61, or 20.6%, to $6.22 after the company lowered its fourth-quarter sales and earnings forecasts, pointing to lower-than-expected Asian orders.
Regions Financial Corp. fell $2.01, or 8.6%, to $21.27 after warning it will set aside $360 million to cover bad loans in the fourth quarter. The bank, with branches mostly in the South and Midwest, said a sharp decline in demand for real estate is hurting loans to builders and property developers.
Overseas, Japan’s Nikkei stock average fell sharply, finishing down 4.03% to its lowest level since July 2006 after being closed since the previous Friday for holidays. The pullback followed uncertainty on Wall Street about the U.S. economy and rising oil prices.
In afternoon trading, Britain’s FTSE 100 fell 0.93%, Germany’s DAX index fell 1.40%, and France’s CAC-40 fell 2.09%.
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