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Weak jobs report, Europe fears pound stocks

(AP) Updated at 4:09 p.m. ET

Stocks closed down sharply Friday after the U.S. Labor Department earlier in the day released a dismal report on hiring and employment. The Dow Jones industrial average lost 275 points, or 2.2 percent, to end at 12,118.57, its steepest one-day drop in more than six months.

The Standard & Poor's 500 index and Nasdaq composite index both fell more than 2 percent.

American employers added just 69,000 jobs in May, the fewest in a year, and the unemployment rate increased to 8.2 percent from 8.1 percent. Economists had forecast a gain of 158,000 jobs.

The government's labor report, considered the most important economic indicator each month, also said that hiring in March and April was considerably weaker than originally thought.

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"The big worry now is that this economic slowdown is widening and accelerating," said Sam Stovall, chief equity strategist at S&P Capital IQ, a market research firm.

The job picture remained dark elsewhere in the world. Unemployment in the 17 countries that use the euro currency stayed at a record-high 11 percent in April, and unemployment spiked to almost 25 percent in Spain.

There were also signs that growth in China, which helped sustain the global economy through the recession, is slowing significantly. China's manufacturing weakened in May, according to surveys released Friday.

The Dow's fall leaves it with a loss for the year of 0.2 percent. Two months ago, the market was up more than 8 percent.

The Standard & Poor's 500 index fell 32 points to 1,278.04. The Nasdaq was off 79.86 at 2,747.48. Both indexes are still up for the year -- about 2 percent for the S&P and 6 percent for the Nasdaq.

Traders sold all types of risky investments and stampeded toward the safety of U.S. government bonds. Bond prices rose sharply, pushing the yield on the benchmark 10-year U.S. Treasury note down to 1.44 percent, the lowest on record.

May was by some measures the worst month for the stock market in two years. Investors' worries about Europe's debt crisis intensified as the month wore on.

The jobs report drew traders' attention back to the weakening U.S. economy, said Todd Salamone, director of research for Schaeffer's Investment Research in Cincinnati.

"The weaker jobs report translates into anticipation of slower growth ahead and weaker corporate earnings, and that ratchets stock prices lower," Salamone said.

Stovall said that traders are waiting to see what governments and central banks might do to juice global economic activity. Otherwise, the losses would be even deeper, he said.

The Fed undertook programs in 2009 and 2010 to buy U.S. government bonds to lower interest rates and help stock prices, but it has resisted a third round of that approach, known as quantitative easing.

Anticipation of bond-buying by the Fed "might put in a little bit of a floor to the market, but the overall economic picture is still bad," said Bob Gelfond, CEO of MQS Asset Management, a New York hedge fund.

The price of gold shot higher. It rose $47 an ounce to $1,611. For much of the past three years, investors have bought gold for safety during a turbulent time for the world economy.

The dollar weakened. The euro rose half a penny against the dollar to above $1.24. A day earlier, fears about Europe's finances had pushed the euro to a nearly two-year low against the dollar.

Gold spiked and the dollar fell partly because traders expect more intervention by the Federal Reserve, Gelfond said.

Bond-buying adds to the supply of money coursing through the economy and leads some investors to worry about future inflation, which would make the dollar less valuable. Traders buy gold as a hedge against inflation.

The price of a barrel of oil fell about $3 to $83.53, extending a month-long slide.

Fewer than 20 of the 500 companies in the S&P index were higher for the day.

Homebuilder stocks were down the most, despite a report that construction spending rose for a second month in April. PulteGroup fell 11 percent, D.R. Horton 9 percent and Lennar 8 percent. The three had the biggest declines of companies in the S&P 500.

Boeing, the biggest U.S. exporter, fell 2.8 percent, one of the biggest declines among the 30 companies that make up the Dow. Traders fear that the economic slowdown will hurt global demand for its airplanes and defense technologies.

Stocks closed way down in Europe. Greece's benchmark stock index fell 4.4 percent, Germany's 3.4 percent and France's 2.2 percent.