Stocks plunge on weak jobs report


NEW YORK -- Wall Street plunged while bonds surged higher Friday after the government reported payrolls in August fell for the first time in four years rather than rising as had been expected. The Dow Jones industrial average fell nearly 250 points.

Investors were taken aback by the Labor Department's report that payrolls dropped by 4,000 in August, the first decline since August 2003. Economists had forecast payrolls would increase by 110,000. However, the unemployment rate held steady at 4.6% as expected.

Wall Street had been awaiting the report all week as it sought to determine how well the economy was holding up under the weight of a faltering housing market, a rise in mortgage defaults and tightening availability of credit. While the report is backward looking, investors regard it as an important proxy of the economy's overall health.

"This certainly cements the case for a Fed action at the next meeting. The debate has really become about whether it will be 25 or 50 basis points," said Zach Pandl, economist at Lehman Brothers Holdings Inc., referring to whether the central bank would reduce rates by a quarter point or a half percentage point. He expects the Fed will reduce rates by 25 basis points to 5% when it meets Sept. 18.

According to preliminary calculations, the Dow fell 249.97, or 1.87%, to 13,113.38.

Broader stock indicators also skidded. The Standard & Poor's 500 index fell 25.00, or 1.69%, to 1,453.55, and the Nasdaq composite index fell 48.62, or 1.86%, to 2,565.70.

The three major indexes, though still in positive territory for the year, all finished the week down more than 1%.

Bonds, meanwhile, soared following the jobs report as investors sought safety. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, skidded to 4.37% from 4.51% late Thursday.