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Markets fall hard; Dow goes into red for 2012

By Laura Mandaro, MarketWatch –

SAN FRANCISCO — U.S. stocks started the new month with more than 2 percent losses Friday, turning the Dow industrials negative for the year and pushing the S&P 500 into correction territory, after a U.S. jobs report showed slim growth in May.

The report, following downbeat data from China and Europe, raised serious concerns about the health of the global economy and sent investors running into Treasurys and gold.

The Dow Jones industrial average fell 274.88 points, or 2.2 percent, to 12,118.57, its worst day since Nov. 9. The index is down 2.7 percent for the week and 0.8 percent for the year.

The S&P 500 index dropped 32.29 points, or 2.5 percent, to 1,278.04, undercutting what some analysts see as support at 1,280, and also its worst day in more than six months.

The index is 10 percent off an intraday, 52-week high and 9.9 percent off its 52-week closing high, both reached on April 2.

A 10 percent pullback, which is often termed a technical correction, “doesn’t mean we’re in a bear market. But it does mean you have to recalibrate for a world where the U.S. is going to barely grow 2 percent, Europe is a chronic source of stress, and emerging markets, at least for now, are not contributing much,” said Russ Koesterich, global chief investment strategist at BlackRock iShares.

The Nasdaq composite index declined 79.86 points, or 2.8 percent, to 2,747.48, also in a correction.

The S&P 500 cut its year-to-date gains to 1.6 percent, while the Nasdaq is 5.5 percent higher for the year so far, largely due to strong gains in the first quarter.

Gold futures rallied as investors sought a safe haven and the dollar fell on speculation that the weak data could trigger more quantitative easing from the Federal Reserve.

The August gold contract surged $57.90, or 3.7 percent, to $1,622.10 an ounce, its best day since August.

Yields on 10-year Treasury notes hit a fresh low below 1.5 percent.

“People are fearing the modest growth we were expecting for the U.S. may fade,” said Scott Wren, senior equity strategist at Wells Fargo Advisors in St. Louis.

“In addition to the European sovereign-debt scenario, which I think won’t go away anytime soon, and fears China is slowing down, over the last couple months we’ve had some deterioration in U.S. data,” he added.

The losses for stocks came after the Labor Department reported Friday that the U.S. economy added only 69,000 jobs in May, while economists polled by MarketWatch expected an increase of 165,000. The unemployment rate edged up to 8.2 percent from 8.1 percent as more people entered the workforce.

Stocks were set up for a tough day after global manufacturing data.

Rival surveys of Chinese manufacturing activity showed tepid growth or contraction last month.

Eurozone manufacturing activity shrank at the fastest pace in three years in May, to 45.1 percent, according to a Markit purchasing managers index.

In the U.S., the Institute for Supply Management said its manufacturing index fell to 53.5 percent in May. Economists polled by MarketWatch had forecast a slide to 54 percent. Readings above 50 indicate the sector is still expanding.

The year “2012 is beginning to look horribly like 2011 — initial high hopes that the recovery was kicking into high gear, subsequently dashed,” wrote Nigel Gault, chief U.S. economist at IHS Global Insight, in an emailed report. “We expect the Fed will probably try to keep pumping in stimulus in some form in the second half of the year,” he said.

All 30 Dow components were lower Friday, led by a 6.3 percent loss in Hewlett-Packard Co. shares and a 4.5 percent drop in Bank of America Corp.

On the S&P 500, PulteGroup Inc., D.R. Horton Inc. and Lennar Corp. shares sank 8 percent to 12 percent each as the home builders came under fire following the jobs data.

On the upside, Newmont Mining Corp. rallied 6.7 percent, the best on the S&P 500. The gold-mining company has promised shareholders to increase its quarterly dividend based on the averaged realized gold price for the preceding quarter.

Nasdaq component Groupon Inc. dropped 8.9 percent to $9.69 after hitting a record low of $9.53. On Friday, restrictions expired on insiders from selling shares after its initial public offering last year.

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