Stocks fell sharply Friday but pared some of their losses and bonds surged higher after the government reported payrolls in August fell for the first time in four years rather than rising as had been expected. Investors were unpleasantly surprised by the Labor Department's report that payrolls fell by 4,000 in August, the first decline since August 2003. The unemployment rate held steady at 4.
6 percent as expected. Wall Street has been awaiting the report as it tries to determine how well the economy is holding up under the weight of a faltering housing market, a rise in mortgage defaults and tightening availability of credit. While the report is backward looking and not predictive, investors regard it as an important reading of the economy's health.
"This certainly cements the case for a Fed action at the next meeting. The debate has really become about whether it will be 25 or 50 basis points," said Zach Pandl, economist at Lehman Brothers Holdings Inc., referring to whether the central bank would reduce rates by a quarter point or a half percentage point.
He expects the Fed will reduce rates by 25 basis points when it meets Sept. In early afternoon trading, the Dow fell 162.34, or 1.
21 percent, to 13,201.01. The blue chip index had been down as much as 241 points.
Broader stock indicators also skidded but came off their lows.
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