No jobs were added in the U.S. last month, the government said early Friday. It was the worst report in 11 months. The unemployment rate held steady at 9.1 percent. It has been above 9 percent in all but two months since May 2009.
"It's certainly ugly," said Jeff Kleintop, chief market strategist at LPL Financial. Kleintop said the report didn't change his view that the economy was headed for a stretch of weak economic growth, not a recession.
Treasury yields fell sharply and gold jumped $48 an ounce as cash flowed into investments seen as less risky than stocks. Overseas markets followed U.S. stocks lower. They were already lower on reports that talks between Greece and international lenders over that country's debt crisis were breaking down.
The Dow Jones industrial average dropped 250 points, or 2.2 percent, to 11,240 at 3:37 p.m. EST. All 30 stocks in the Dow fell. Bank of America Corp. fell the most, 8 percent.
The Standard & Poor's 500 index fell 30, or 2.5 percent, to 1,173. The Nasdaq composite index fell 65, or 2.5 percent, to 2,480.
The losses wiped out most of this week's gains, pushing the Dow and S&P 500 down by less than 1 percent. Stock indexes rose last week for the first time since July 22.
Volume was thin ahead of the Labor Day weekend, which often makes markets take bigger jumps. When fewer traders are active in the market, large buy and sell orders can move stock prices more than they would on a typical day.
The lack of hiring in the Labor Department's closely watched jobs report surprised investors. Previously reported job addition figures for June and July were also revised lower. The average work week declined and hourly earnings fell.
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