The Dow Jones industrial average dropped nearly 260 points and fell below 10,000 after the Labor Department's disappointing news that hiring remains weak.
Interest rates fell sharply as investors moved their money into the safety of Treasury bonds and notes. All the major indexes were down more than 2 percent. Losses were exacerbated by new concerns about Europe's debt problems.
A drop in the euro, the currency used by 16 countries in Europe, also contributed to stocks' slide. The euro fell as low as $1.1973 before climbing back to $1.1980.
Retailers were among the hardest hit stocks as investors bet that a weak job market would discourage consumers from spending. Financial stocks also fell sharply on concerns that borrowers would continue having problems paying their bills. Banks were further hurt by worries about their vulnerability to Europe's increasing troubles.
The government's May jobs report was an unpleasant surprise for the market. The Labor Department said private employers hired just 41,000 jobs 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 picking up the momentum that investors have been looking for.
The government also said 431,000 jobs overall were created last month, but most of those jobs, 411,000, came from the government's 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 in a series of reports this week that show the economy isn't as robust as hoped. But investors had become a little more optimistic in the past few days and had sent stocks higher as they bet on stronger job growth in May.
The reality of the report erased that optimism.
"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 jobs report and a string of other economic numbers that were unimpressive have made investors more tentative about the economy, Sparks said.
Investors were worried that employers' reluctance to hire would further hurt consumers. Investors were already nervous about consumer spending after retailers reported Thursday that their sales were sluggish during May. Clothing retailer stocks were among the big losers after the jobs report Friday as investors bet that shoppers would stick to buying only necessities.
Credit card companies and regional banks also fell sharply.
In late morning trading, the Dow fell 259.22, or 2.5 percent, to 9,996.14. The Standard & Poor's 500 index fell 27.21, or 2.5 percent, to 1,075.62, while the Nasdaq composite index futures dropped 52.47, or 2.3 percent, to 2,250.56.
About six stocks fell for every one that rose on the New York Stock Exchange, where volume came to 509.3 million shares.
Investors moved money into safe investments including Treasuries because of the weak employment report and a 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.
The jobs report also had investors worrying once more about the possible 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 that their problems could hobble the regional economy and eventually the U.S. Hungary on Friday became the latest country to warn it is having financial troubles, following Greece, Spain and Portugal.
The fear now is that the U.S. economy might be more vulnerable than thought to a spread of Europe's problems.
"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 $1.1973 before climbing back to $1.1980. The euro has become an indicator for investors' confidence in Europe's economy.
The euro has fallen more than 10 percent since April 26, the day the Dow hit its highest level of the year.
Overseas, Britain's FTSE 100 fell 1.8 percent, Germany's DAX index fell 1.9 percent, and France's CAC-40 dropped 2.7 percent. All three indexes traded higher early in the day.
Among retail stocks, women's apparel seller AnnTaylor Stores Corp. fell $1.04, or 4.9 percent, to $20.37. JCPenney Stores Co. fell $1.35, or nearly 5 percent, to $25.73. Liz Claiborne Inc. lost 51 cents, or 8.3 percent, and fell to $5.67.
Credit card issuers also fell sharply. American Express Co. fell $1.26, or 3.1 percent, to $39.28. Discover Financial Services Inc. fell 41 cents, or 3 percent, to $13.11. Regional banks, considered vulnerable to failed loans, also fell sharply. Key Corp. dropped 28 cents, or 3.4 percent, to $7.90. Regions Financial Corp. lost 31 cents, or 4.1 percent, to $7.33.
Big international banks were hurt by the European debt worries. UBS AG fell 58 cents, or 4.4 percent, to $12.75, while Barclays PLC fell 76 cents, or 4.3 percent, to $16.83.
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 $2.49 to $72.12 a barrel on the New York Mercantile Exchange.
The Russell 2000 index of smaller stocks fell 17.58, or 2.6 percent, to 649.79.
© Copyright 2017 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.