* Non-farm payrolls sparks broad selling
* Investors to turn to upcoming earnings for direction
* Google slumps on downgrade
* Indexes off: Dow 1 pct, S&P 1.2 pct, Nasdaq 1.2 pct
* For up-to-the-minute market news see [STXNEWS/US] (Updates to midmorning)
By Edward Krudy
NEW YORK, July 8 U.S. stocks dropped on Friday after weak jobs growth in June dented hopes the economy was emerging from a temporary soft patch, casting doubt on a recent strong run in equity markets.
U.S. employers hired a mere 18,000 workers, the Labor Department said, the fewest number in nine months and far below economists' expectations for a 90,000 rise.
The selloff was broad as the report dashed expectations that labor market would show more signs of strength after some encouraging jobs numbers during the week.
Shares of Monster Worldwide, an on-line employment agency, sunk nearly 6 percent and were the biggest percentage loser on the Dow Jones U.S. business training and employment index .DJUSBE, which dropped 4 percent.
"My thoughts are 'yuk,'" said Jim Paulsen, chief investment officer at Wells Capital Management, referring to the payrolls number. However, Paulsen said recent signs of strength in the economy, such as retail sales and a separate report showing strong private hiring, would likely keep investors engaged.
Banking stocks were among the biggest losers. The S&P's financial index .GSPF fell 1.8 percent, led lower by Bank of America (BAC.N), which shed 2 percent to $10.70.
The Dow Jones industrial average .DJI dropped 131.54 points, or 1.03 percent, to 12,587.95. The Standard & Poor's 500 Index .SPX dropped 16.59 points, or 1.23 percent, to 1,336.63. The Nasdaq Composite Index .IXIC dropped 33.92 points, or 1.18 percent, to 2,838.74.
The unemployment rate rose unexpectedly to 9.2 percent, the highest since December, from 9.1 percent in May. For details, see [ID:nOAT004829]
For graph of the S&P 500 and the payrolls numbers, link.reuters.com/dev52s
Many economists had raised their non-farm payrolls forecasts on Thursday after a stronger-than-expected reading on private hiring from payrolls processor ADP, which prompted stocks to rally on Thursday.
The benchmark S&P 500 had risen 6.7 percent over the past eight sessions before Friday's decline on economic data which suggested the economy was bouncing back.
The payrolls number means investors will now look toward the start of earnings season next week for guidance.
"Clearly one bad month of jobs can be dismissed, two disappointments in a row starts to be a concern. It's putting the pieces in place for very, very low economic growth," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.
"Earnings season can't come soon enough. That will give us a really good handle on our overall trajectory."
U.S. wholesale inventories rose 1.8 percent in May, the Commerce Department said. The larger-than-expected increase created a potential drag on growth in the second half of the year as the job market slows. [ID:nN1E7670GD]
Google Inc (GOOG.O) fell 2.2 percent to $534.34 after Morgan Stanley downgraded the stock to "equal-weight," saying the search giant's margins will shrink as it undertakes aggressive hiring and ramps up advertising for new products. [ID:nL3E7I81Z3] (Reporting by Edward Krudy; Editing by Kenneth Barry)