NEW YORK (CNN/Money) -
U.S. stock markets tumbled Friday, after the morning's blowout monthly payrolls number sparked fears that interest rates are set to rise soon.
The Dow Jones Industrial Average fell 1.2 percent, the Standard & Poor's 500 index fell around 1.4 percent, while the Nasdaq composite lost 1 percent.
For the week, the Dow industrials lost 1 percent, the S&P 500 index lost 0.7 percent, while the Nasdaq lost just 0.1 percent.
Tech stocks had rallied and blue chips see-sawed through the morning as investors initially accentuated the positive in the April employment report, which showed that businesses beefed up their payrolls substantially for the second month in a row and that unemployment dipped.
After months of talk of a "jobless recovery," the report seemed to confirm that the labor market is finally moving forward. But any enthusiasm about this disappeared by the afternoon, with Wall Streeters returning their focus to interest rates, which by all accounts, are set to rise soon.
Interest-rate sensitive blue-chips initially led the market decline, dominated by stocks in the auto, homebuilder and financial sectors. But the negativity soon spread to other sectors, with 27 out of 30 Dow components tumbling.
Treasury bond prices fell, too. The greenback rallied, pressuring gold and other dollar-traded commodities.
"While today's news is very positive, I think the market is likely to remain caught between very good economic data and the worry that things aren't going to get any better from here," said Jeff Kleintop, chief investment strategist at PNC Advisors. "I would expect us to continue being pulled back and forth in this trading range we've been in for most of 2004."
Next week promises to bring more speculation about interest rates. There are no economic data due until Wednesday. The second half of the week brings reports on producer prices, retail sales, business inventories, consumer prices, industrial production, capacity utilization and the first read on May consumer sentiment from the University of Michigan.
A few earnings are due during the week from Cisco Systems, Walt Disney, Wal-Mart Stores and Dell. (For a look at these earnings, click here.)
Rate fears amp up
Employers added 288,000 jobs to their payrolls in April, far more than the 173,000 jobs expected by economists surveyed by Reuters. In addition, March's already strong payrolls number was revised higher, to 337,000 from an initial read of 308,000.
The unemployment rate in April fell to 5.6 percent from 5.7 percent in March. Economists had expected the unemployment rate wouldn't budge.
While this was certainly a positive for the economic recovery, it also seemed to confirm that rates could rise as soon as June, rather than August, as many investors had thought prior to this week.
For some investors, the fact that the jobs report seemed to give a clearer timeline to interest rate hikes was a positive. A guessing game of 'when will rates rise?' has kept stocks under pressure for weeks on concerns that rising rates would slow economic growth and dent corporate profits, therefore hurting stock prices.
Comments from the Federal Reserve earlier this week only added to the confusion, with the central bank saying rates would rise this year, but offering few clues as to when.
But for other investors, news that rates could rise soon was a big negative; ultra-low rates had helped fuel the economy, and the stock market rally, in 2003 and early this year.
What moved?
The Dow's biggest losers were Alcoa (AA: down $1.36 to $29.14, Research, Estimates), down 4.5 percent, Home Depot (HD: down $1.36 to $33.00, Research, Estimates), down 4 percent and General Motors (GM: down $1.67 to $44.60, Research, Estimates), down 2.6 percent.
Shares of Krispy Kreme Doughnuts (KKD: down $9.29 to $22.51, Research, Estimates) tumbled 29 percent in active New York Stock Exchange trading after it warned that results will miss its previous estimates by 10 percent for the latest quarter, due to the impact of the low-carb diet craze on doughnut sales.
On the Nasdaq, Microsoft (MSFT: down $0.30 to $25.78, Research, Estimates), Amazon.com (AMZN: down $1.20 to $41.90, Research, Estimates), Sun Microsystems (SUNW: down $0.00 to $3.72, Research, Estimates) and Ciena (CIEN: down $0.00 to $3.79, Research, Estimates) were among the decliners.
Despite the decline in a number of tech issues, Intel (INTC: up $0.40 to $26.47, Research, Estimates) and Cisco Systems (CSCO: up $0.10 to $21.69, Research, Estimates) remained higher.
Chipmakers -- often leaders on the Nasdaq -- managed to close higher, although off their best levels. The Philadelphia Semiconductor (up 4.50 to 457.01, Charts) index, or the Soxx, added 1 percent, having been up more than 2 percent earlier in the session.
Also helping the sector was a Credit Suisse First Boston upgrade of a few of the chip-gear makers.
The brokerage upgraded Atmi (ATMI: up $1.00 to $24.92, Research, Estimates) and Amkor Technology (AMKR: up $0.50 to $9.24, Research, Estimates) to "outperform" from "neutral," and Kulicke and Soffa Industries (KLIC: up $0.40 to $10.73, Research, Estimates) to "neutral" from "underperform," citing positive growth indicators, seasonal trends, and stock valuation.
But the positives were not sufficient to keep the Nasdaq in positive territory amid the broader market pullback.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by more than eight to one as 1.64 billion shares traded. On the Nasdaq, decliners beat advancers by almost two to one as 1.63 billion shares changed hands.
Treasury prices tumbled after the employment report, with the 10-year note losing 1-9/32, pushing its yield up to 4.77 percent from 4.60 percent late Thursday. Bond prices and yields move in the opposite direction.
The dollar rallied versus the yen and euro.
In commodities markets, light crude oil futures gained 56 cents to settle at $39.93 a barrel. COMEX gold lost $9.30 to $379.10 an ounce.
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