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By Chris Prentice and Naomi Rovnick
NEW YORK/LONDON (Reuters) -Surprisingly weak U.S. employment data on Friday stoked fears of a recession ahead, prompting investors to dump stocks and turn to safe-haven bonds.
Treasury prices surged, sending yields to multi-month lows.
Oil price benchmarks fell by more than $3 per barrel at their session lows. The U.S. dollar index dropped over 1% to its weakest since March.
Richly valued technology firms bore much of the pain, and an index of European bank stocks headed for its largest weekly decline in 17 months on soft earnings.
The VIX stock market volatility measure, dubbed Wall Street's fear gauge, surged over 40%.
Friday's U.S. jobs report showed job growth slowed more than expected in July and unemployment increased to 4.3%, pointing to possible weakness in the labor market and greater vulnerability to recession.
Markets were already rattled by downbeat earnings updates from Amazon and Intel and Thursday's softer-than-expected U.S. U.S. factory activity survey in addition to the monthly U.S. non-farm payrolls report, which showed job growth slumped to 114,000 new hires in July from 179,000 in June.
The data raised expectations of multiple rate cuts by the Federal Reserve this year, which just this week opted to keep rates unchanged.
"The jobs data are signaling substantial further progress that the Federal Reserve made a policy error by not reducing the fed funds rate this week," said Jamie Cox, managing partner for Harris Financial Group in Richmond, Virginia.
"It’s very possible the Fed alters its inter-meeting communications on the balance of risks to remove all doubt about a September rate cut. "
With thin summer trading likely exaggerating moves, a slump that began in Asia with a 5.8% drop for Japan's Nikkei, its biggest daily fall since March 2020 during the COVID-19 crisis, rippled through Europe and headed for Wall Street.
MSCI's gauge of stocks across the globe fell 16.09 points, or 2.00%, to 787.31.
The Nasdaq Composite lost 417.98 points, or 2.43%, to 16,776.16. The index has fallen more than 10% from its July closing high, confirming it is in a correction after concerns grew about expensive valuations in a weakening economy.
The Dow Jones Industrial Average fell 610.71 points, or 1.51%, to 39,737.26, the S&P 500 lost 100.12 points.
Europe's STOXX 600 fell close to 3%, with financials and technology the worst hit.
Emerging market stocks fell 24.30 points, or 2.23%, to 1,063.50.
MSCI's broadest index of Asia-Pacific shares outside Japan closed 2.48% lower 2.48%, at 553.72, while Japan's Nikkei fell 2,216.63 points, or 5.81%, to 35,909.70.