Dow drops 324 points as euro sinks

NEW YORK (CNNMoney.com) -- Stocks slumped Friday after a government report showed employers added fewer jobs than expected last month and the euro plunged to a new 4-year low, reviving worries about the health of the European economy.

The Dow Jones industrial average (INDU) lost 324 points, or 3.2%, closing at 9,931.97, just above the lows of 9,889 hit earlier. It was the lowest close since Feb. 8 of this year.

The S&P 500 index (SPX) gave up 38 points, or 3.4%. The Nasdaq composite (COMP) slid 84 points, or 3.6%. The losses turned the major indexes lower for the holiday-shortened week.

The weaker-than-expected jobs report seemed to add to concerns that the problems with Europe's economy will cause the U.S. economy to experience a setback so soon after starting to recover from the recession.

"The jobs report was extraordinarily disappointing," said Phil Orlando, chief equity market strategist at Federated Investors. He said that in particular the weakness outside of Census hiring was worrisome.

Meanwhile, the euro plunged to a new four-year low after European Union member nation Hungary warned about its ballooning debt, with an official saying that the economy was in a "grave situation" and that the threat of default was "no exaggeration."

Hungary doesn't use the euro, but its woes affected the 16-nation shared currency on concerns that a broad European debt crisis is developing. Previously, the focus was mostly on Greece and the other PIIGS nations - Portugal, Italy, Ireland and Spain.

"It was a double whammy," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

"Between the issues with Hungary and the euro and then the realization that the jobs number was mostly census, we were weaker right from the open," he said. "Then you add in the fact that it's a summer Friday and no one wanted to hold going into the weekend."

All three major indexes are firmly in correction territory -- down more than 10% off the rally highs hit in late April. They are at risk of falling even further in the near term, although analysts are mixed on how deep the pullback is likely to be.

"There's a war between relatively constructive domestic metrics and the fear that the problems abroad are going to jump the pond and poison the U.S. economy through contagion," Orlando said.

Jobs: Employers added 431,000 jobs in May, the biggest number in more than 10 years and an improvement from the 290,000 added in April, the Labor Department said.

However, economists expected 500,000 on average, according to a consensus surveyed by Briefing.com. More notably, 411,000 of the May jobs were short-term Census positions, meaning private-sector job growth was wimpy. Private sector job growth was 41,000 in the May, short of forecasts and weaker than the jump in April.

Also, while the government added 411,000 Census jobs, it also cut 21,000 other positions, leaving the total increase in government payrolls at 390,000.

The unemployment rate dropped to 9.7% from 9.9%, beating expectations for a drop to 9.8%.

On the upside, hourly earnings increased 0.3% after flattening out in April. Economists thought earnings would increase 0.1%.

Euro: The euro tumbled to a new four-year low against the dollar, falling as low as $1.1956 before recovering a bit to stand at $1.1968.

The dollar fell 1% against the yen.

On the move: All 30 Dow components fell, led by Chevron (CVX, Fortune 500), Exxon Mobil (XOM, Fortune 500), Boeing (BA, Fortune 500), IBM (IBM, Fortune 500), 3M (MMM, Fortune 500) and United Technologies (UTX, Fortune 500).

A variety of financial shares declined, including Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500), Capital One Financial (COF, Fortune 500) and Wells Fargo. The KBW Bank (BKX) sector index fell 4.4%.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by over nine to one on volume of 1.64 billion shares. On the Nasdaq, decliners topped advancers eight to one on volume of 2.4 billion shares.

Energy stocks: BP (BP) shares continued to fall Friday in the aftermath of the massive oil leak, more than 6 weeks after its Deepwater Horizon rig exploded. Standard & Poor's cut its credit rating Friday after Fitch and Moody's, the other big ratings agencies, downgraded BP Thursday.

Efforts to plug the leak have been so far unsuccessful. While the company expects the flow to be capped by August, experts say there is a risk that it could drag on a lot longer.

Energy stocks slumped, including Dow components Exxon Mobil (XOM, Fortune 500) and Chevron (CVX, Fortune 500). The Amex Oil index lost 4.3%. The Amex Natural Gas index lost almost 4%.

Wal-Mart: Wal-Mart Stores (WMT, Fortune 500) announced a new $15 billion share buyback plan Friday at its annual meeting for shareholders. Buyback plans are generally seen as positive for the company's stock price going forward as they represent a sign of corporate confidence.

Wal-Mart also said it will create 500,000 jobs globally over the next five years.

World markets: Markets in Europe tumbled on Hungary's comments and after the EU reported European growth in the first quarter was just 0.2%, short of the United States and Japan. Britain's FTSE 100 lost 1.6%, Germany's DAX gave up 1.9% and France's CAC 40 retreated 2.9%.

Asian markets were mixed. Japan's Nikkei lost 0.1% and Hong Kong's Hang Seng was little changed. China's Shanghai Composite added a few points.

Commodities: U.S. light crude oil for July delivery fell $3.10 to settle at $71.51 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery rose $7.70 to settle at $1,217.70 an ounce.

Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.22% from 3.38% late Thursday. Treasury prices and yields move in opposite directions.