Stocks on major exchanges extended their losses today and the euro hit five-week lows after US jobs data for June came in weaker than expected, fuelling concerns that Europe's debt crisis is pushing the world's largest economy into low gear.
Prices of oil and copper fell along with those gold as the dollar surged amid a broad flight from risk.
US and German government bond prices leapt, with investors seeking safe havens in US Treasuries and German bunds.
The Labor Department said US non-farm payrolls expanded by just 80,000 jobs in June, falling short of forecasts. A Reuters poll showed the market expecting a growth of 90,000 jobs.
The data raised pressure on the Federal Reserve to do more to boost the economy. The 80,000 jobs added in June was "a poor number and a very political number and it will not sit well with the market," said Jeff Savage, regional chief investment officer for Wells Fargo Private Bank in the Northwest in Portland, Oregon.
"There is no question that the QE3 conversation becomes very alive in the coming days and weeks," he said, referring to a third round of quantitative easing since 2008 that markets were expecting from the Fed. The first two rounds of QE involved large-scale Treasuries buying, aimed at lowering long-term interest rates.
Futures traders added to bets that the Fed will keep short-term interest rates near zero until the end of 2014.
Fed fund futures, tied to the overnight lending rate between banks, ticked up after the jobs report, signalling traders see the Fed first hiking rates in the fourth quarter of 2014, either at its October or its December meeting of that year.
The Dow Jones industrial average fell 132.83 points, or 1.03 per cent, to 12,763.84. The S&P 500 Index dropped 13.80 points, or 1.01 per cent, to 1,353.78. The Nasdaq Composite lost 33.87 points, or 1.14 per cent, to 2,942.25.
European shares fell further after the jobs data, down nearly 0.8 per cent on the day, having been 0.2 per cent lower beforehand. World stocks fell 1 per cent.
The euro extended losses to fall to a fresh five-week low against the dollar, sliding nearly 0.5 per cent to $1.2332 after falling as low as $1.2317 earlier.
Monetary policy loosening by a trio of major central banks failed to impress investors today, pushing Spanish borrowing costs back up to unsustainable levels reached before last week's EU summit took measures designed to ease pressure on
them.
China, the euro zone and Britain all loosened monetary policy yesterday, signalling growing alarm about the world economy.
Reuters
