NEW YORK -- Stocks fell to their lowest level in four months Friday after the government said hiring remains weak and another European country warned its economy was in trouble.
The Dow Jones industrial average dropped 323 points to close below 10,000. It was the lowest finish since February and the third-worst slide of the year.
Major indexes all lost more than 3 percent. The drop pushed the market back into what's called a "correction," or a decline of at least 10 percent from its April high.
Interest rates slid after traders shoveled money into the safety of Treasurys and the dollar.
Retailers were among the hardest-hit stocks after investors bet that a weak job market would discourage consumers from spending. Macy's fell 6.5 percent. Financial stocks also fell sharply on concerns that borrowers would continue having problems paying their bills. Banks were hurt by more worries about their exposure to Europe's debt crisis. American Express lost 5.3 percent.
The government's May jobs report came as an unpleasant surprise for investors who had grown a little more upbeat about the domestic economy the past few days. The Labor Department said private employers hired just 41,000 workers in May, down dramatically from 218,000 in April and the lowest number since January. The news made it clear that the economic recovery isn't yet picking up the momentum that investors have been looking for.
The government said 431,000 jobs overall were created last month, but most of those them, 411,000, came from government hiring of temporary census workers. The overall number also fell short of expectations. Economists polled by Thomson Reuters had forecast employers would add 513,000 jobs.
"People are looking for one turning point," Daniel Penrod, senior industry analyst for the California Credit Union League, said of the monthly jobs report. "That's not realistic. This growth will be much slower and more gradual than in the past."
The unemployment rate fell to 9.7 percent from 9.9 percent in April. That was slightly better than the 9.8 percent unemployment rate economists had forecast.
The jobs report was the latest during the week to signal that the economy isn't as robust as hoped.
"It's almost as if the worst fears of the market were realized, at least in this one report," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research.
The slowdown in hiring last month cast more doubt on how much consumers will be able to pick up their spending. A day earlier, retailers reported sluggish sales for May. Stocks of clothing retailers were among the big losers after the jobs report as traders bet shoppers would stick to buying necessities.
Credit card companies and regional banks also fell sharply.
Meanwhile, the spokesman for Hungary's new prime minister described the country's economy as being in a "grave" situation. He also said his government is ready to avoid a crisis like the one being faced by Greece, which had to be bailed out by the European Union. Spain and Portugal are also struggling.
The Dow fell 323.31, or 3.2 percent, to 9,931.97, its steepest drop since May 20. All 30 stocks that make up the index fell.
It was the Dow's third drop of more than 300 points this year, all of which occurred in the last month. The Dow is now down 11.4 percent from its 2010 peak of 11,205, which it reached on April 26.
The Standard & Poor's 500 index fell 37.95, or 3.4 percent, to 1,064.88. The index is down 12.5 percent from its 2010 high.
The Nasdaq composite index dropped 83.86, or 3.6 percent, to 2,219.17. It's down 12.3 percent from its high of the year.
Fewer than 300 of the nearly 3,000 stocks that trade on the New York Stock Exchange rose. Consolidated volume came to 6.3 billion shares compared with 5 billion Thursday.
Only three of the stocks in the S&P 500 index rose: Cephalon Inc., Frontier Communications Corp. and People's United Financial Inc.
For the week, the Dow lost 2 percent, its third straight weekly drop. The S&P 500 index fell 2.3 percent and the Nasdaq dropped 1.7 percent.
Investors moved money into safe investments including Treasurys because of the weak employment report and the faltering euro. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.21 percent from 3.37 percent late Thursday. The yield on the 10-year note is often used as a benchmark for consumer loans and mortgages.
Analysts say there is little in the way of economic news that could shake the market from its funk.
"It's hard to see over the next month what will make stocks rally," said Paul Zemsky, head of asset allocation at ING Investment Management in New York. It might not be until next month's employment report that investors get the kind of positive news that could propel stocks higher, he said.
Investors are also worrying about the impact that Europe's economic problems could have on the U.S. During the past month, investors have been preoccupied with rising debts in Europe, fearing they could hobble the regional economy and eventually the U.S.
"The events in Hungary are reminding the market that the problems with sovereign debt are a lingering affair," said Nick Kalivas, vice president of financial research at MF Global in Chicago. He added that reminders of Europe's debt crisis will pop up on occasion and send stocks lower, in much the way that the market faltered early in the subprime mortgage crisis.
"Until there's a resolution, we're just going to kind of have to deal with it," Kalivas said.
A drop in the euro, the currency used by 16 countries in Europe, contributed to stocks' slide. The euro fell as low as $1.1956, a four-year low. Hungary doesn't use the euro but the drop the currency was a sign of flagging confidence in Europe's economy.
The euro has fallen more than 10 percent since stocks peaked six weeks ago.
Overseas, Britain's FTSE 100 fell 1.8 percent, Germany's DAX index fell 1.9 percent, and France's CAC-40 dropped 2.9 percent. All three indexes rose early in the day.
Among retail stocks, Macy's Inc. fell $1.46, or 6.5 percent, to $21.03. JCPenney Stores Co. fell $1.59, or 5.9 percent, to $25.48 and Liz Claiborne Inc. slid 63 cents, or 10.2 percent, to $5.55.
Credit card issuers also dropped. American Express Co. fell $2.13, or 5.3 percent, to $38.41. Discover Financial Services Inc. fell 66 cents, or 4.9 percent, to $12.86. Regional banks, considered vulnerable to failed loans, also fell sharply. Key Corp. dropped 40 cents, or 4.9 percent, to $7.77. Regions Financial Corp. lost 51 cents, or 6.7 percent, to $7.13.
Oil prices fell sharply as investors pulled out of commodities, which like stocks are seen as risky assets. Investors were also wondering whether demand might fall if the economy is weaker than expected. Benchmark crude dropped $3.10 to $71.51 a barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller stocks fell 33.40, or 5 percent, to 633.97.
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