Dow sinks as job data disappoint

NEW YORK â€”  Hopes that the stock market’s spring downturn had ended last week were dashed Friday as share prices tumbled in response to a disappointing report on jobs and a ratcheting-up of worries about Europe’s economy.

The Dow Jones industrial average sank 323.31 points, or 3.2%, to 9,931.97, its lowest level since February and only its third close below 10,000 in the last seven months.

Broader indexes fell more sharply, with the Standard & Poor’s 500 index dropping 3.4% and the Nasdaq composite index down 3.6%.

The market opened well into negative territory after the Labor Department released an employment report that may have looked good to the civilian eye but seriously disappointed Wall Street.

Employers added 431,000 jobs in May, the biggest expansion in 10 years.

But that increase was smaller than most economists had forecast, and nearly all of it appeared on government payrolls, thanks largely to the hiring of temporary workers for the 2010 census.

The private sector added only 41,000 jobs, fewer than in either March or April, causing many investors to doubt the depiction of an economic recovery on track.

The unemployment rate fell to 9.7% from 9.9% in April, but only because fewer people were looking for work, not because more people had jobs.

The labor market is always a late arrival to an economic recovery, but many analysts had expected that Friday’s report would show employment on a firm growth path.

“The jobs report was the missing puzzle piece that we need to fill in,� said Jack Ablin, chief investment officer at Harris Private Bank. “Unfortunately it was not there. It’s still missing.�

After peaking in late April, stock prices slumped for several weeks on worries about the debt crisis in southern Europe and a general unease about the U.S. economy.

The three major stock indexes all fell more than 10% from their April highs, satisfying the definition of a market “correction.�

But advancing share prices over the last week allowed many investors to hope that the correction had ended last month.

But Friday’s sell-off sent the indexes below their late-May lows.

At the end of trading Friday, the Dow was down 11% from its April 26 peak, while the S&P; 500 was off 13% from its April 23 high.

The disappointing employment picture Friday was compounded when the Hungarian government suggested that it could default on its debts.

Hungary represents a tiny fraction of the European economy, but the announcement heightened fears that problems in Greece, Portugal and Spain could spread to the rest of the continent.

“Why should the market care just about small little Hungary?� asked Ryan Larson, the head trader at RBC Global Asset Management. “It speaks to that fear of contagion spreading across multiple banks and countries in that area.�

The flames were further fanned by word of big trading losses at French bank Societe Generale, which did not deny the rumor. The company’s shares lost 7.6% on the French stock exchange.

Key stock indexes fell 2.9% in France and 3.8% in Spain.

In the currency markets, the euro slumped against the dollar, ending the day on Wall Street at $1.19, a four-year low.

Europe’s problems have spooked markets worldwide, in no small part because they seem to resemble parts of the global financial crisis still fresh in investors’ minds.

“The ghost of the fall of 2008 will continue to haunt the markets, as parallels abound with the current debt crisis in Europe,� John Stoltzfus, an analyst at Ticonderoga Securities, wrote in a note to clients.

The specter of the financial crisis also serves as a reminder that the economy and the stock market may not see smooth sailing so soon after the Great Recession.

“We were reminded today,� David Rosenberg, chief economist at Gluskin Sheff, wrote in a note to clients, “that in a post-bubble credit collapse, economic recoveries are typically fragile and susceptible to periodic setbacks.�

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Times staff writer Walter Hamilton contributed to this report.