Bears remain in control

NEW YORK (CNNMoney.com) -- Major gauges remained lower on Friday afternoon trade as a worrisome jobs report and weakness in the financial sector weighed on stocks.

The Dow Jones industrial average (down 51.37 to 13,411.96, Charts) fell 56 points, or 0.4 percent, with 2-1/2 hours remaining in the session after falling by as much as 124 points earlier in the session.

The broader S&P 500 (down 9.85 to 1,462.35, Charts) slipped 0.6 percent, while the Nasdaq Composite index (down 16.12 to 2,559.86, Charts) lost about 0.6 percent.

After an early decline, the market selloff accelerated after credit rating agency Standard & Poor's lowered Bear Stearns debt rating to "negative" from "stable," citing its recent troubles in its managed hedge funds, some of which were invested in bonds linked to subprime mortgages.

Bear Stearns (down $2.53 to $113.10, Charts, Fortune 500) challenged the rating cut, saying it was unwarranted, leaving its shares nearly 2 percent lower on the New York Stock Exchange.

Other financials were also lower in afternoon trade, including Goldman Sachs (down $3.31 to $184.15, Charts, Fortune 500) and Morgan Stanley (down $0.84 to $63.04, Charts, Fortune 500).

The KBW Bank Index (down $1.57 to $104.59, Charts) fell 1.5 percent while the AMEX Securities Broker/Dealer index (down $3.82 to $220.88, Charts) slipped nearly 2 percent.

Stocks staged late-session rallies over the last 2 days, as investors appeared to overcome credit markets worries and problems hitting mortgage lenders.

Investors, however, could not overlook Friday's disappointing employment report, which revealed that U.S. employers added fewer jobs than anticipated in July, and a weaker-than-expected reading on service sector growth.

In corporate news, DaimlerChrysler (down $1.09 to $90.09, Charts) completed the sale of its Chrysler Group unit to private equity firm Cerberus Capital Management, bringing an end to the failed 9-year-old merger.

American Home Mortgage closed its doors Friday after lenders had cut off credit, cutting nearly 7,000 jobs.

Take-Two Interactive Software (down $3.10 to $13.81, Charts) warned after the bell Thursday that it would delay its most important upcoming video game, "Grand Theft Auto IV," and that it would post a full-year loss. Shares plunged nearly 18 percent lower on the Nasdaq.

On the earnings front, both consumer-products maker Procter & Gamble (down $0.21 to $63.09, Charts, Fortune 500) and the No. 1 automaker, Toyota Motor (up $0.80 to $119.39, Charts), reported better than expected profits Friday.

Market breadth was negative. Decliners topped advancers by nearly 3 to 1 on the New York Stock Exchange on volume of 1.05 billion shares. Losers beat winners by more than 2 to 1 on the Nasdaq on volume of 1.29 billion shares.

Oil prices retreated as the price of U.S. light crude lost 74 cents to $76.12 a barrel on the New York Mercantile Exchange.

Treasury prices jumped on the economic readings and amid subprime worries, taking the yield on the 10-year note to 4.72 percent from the 4.77 percent level reached late Thursday.

The dollar fell against the euro and the yen.

COMEX gold for December gained $5.80 to $682.40 an ounce.

Overseas, European stocks ended lower, while Asian markets finished the session mostly higher.