NEW YORK (Reuters) - Yields on U.S. and European debt fell to record lows on Friday and stock markets plunged after a weak U.S. jobs report aggravated fear of a global slump and sent investors scurrying for safety.
The data, which showed U.S. job growth at its weakest in a year, underscored a growing sense that the U.S. economy is not immune to a slowdown in Europe where Spain is struggling to support its banks or to China's slackening economic demand.
U.S. and European stock indexes fell sharply. The blue-chip Dow average and FTSEurofirst 300 index of European shares erased their gains for the year.
Crude oil hit a 16-month low of less than $98 per barrel.
Poor Chinese manufacturing data and dismal European reports on factory activity added to the anxiety, propelling safe-haven gold to its biggest one-day rally in more than three years.
"I don't think we were ever out of the woods, but people got very optimistic earlier this year. Now, reality is setting back in," said Joshua Shapiro, chief U.S. economist at MFR, a global consulting firm. "Globally, we've got a tough road ahead."
John Kilduff, a partner at New York-based investment manager Again Capital, added: "From China to Europe to the U.S., all the data have shown real slowing."
The gloomy outlook sparked talk of more emergency measures from major central banks, which have tried to boost growth in recent years by slashing interest rates to almost zero and boosting cheap credit to banks.
"The time has probably come for some new government action in the U.S., Europe and China," said Rick Meckler, president of hedge fund LibertyView Capital Management LLC in Jersey City, New Jersey.
"The hope for U.S. investors," he said, "had been that the U.S. economy at least could continue its growth even as Europe was declining."
The possibility of new Federal Reserve bond purchases pushed the dollar down against the euro, although Europe's crisis limited the single currency's gains. It last traded up 0.6 percent at $1.2429 after dipping below $1.23 earlier.
German Bund futures hit a record high of 146.89, up 86 ticks on the day, and yields on German 10-year bonds fell as low as 1.127 percent. Two-year yields on German debt dipped below zero for the first time, falling to -0.001 percent.
Benchmark 10-year Treasury notes rose as much as 1-4/32 in price to yield 1.442 percent, the lowest on records that date to the early 1800s, according to Reuters data.
British government borrowing costs sank to record lows across the full range of maturities.
Some questioned the wisdom of buying bonds that on an inflation-adjusted basis are already providing negative returns. The coupon on German and U.S. 10-year government debt is 1.75 percent - below the rate of inflation.
"It's starting to get a little ridiculous. The bond market is just insane, insane. People have lost their mind," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.
Dan Fuss, vice chairman and a portfolio manager at Loomis Sayles, said global growth was clearly slowing, but the price on government debt had gotten out of hand.
"Treasuries are vastly overpriced and getting more so. If the Fed engages in another round of quantitative easing, they won't call it that," Fuss said.
But the appetite for riskier assets was in short supply.
MSCI's all-country world equity index .MIWD00000PUS fell 1.9 percent, while the FTSEurofirst 300 .FTEU3 closed down 1.9 percent at 954.874, wiping out this year's gains.
The Dow Jones industrial average .DJI closed down 274.88 points, or 2.22 percent, to end at 12,118.57. The Standard & Poor's 500 Index .SPX fell 32.29 points, or 2.46 percent, to finish at 1,278.04. The Nasdaq Composite Index .IXIC shed 79.86 points, or 2.82 percent, to close at 2,747.48.
Copper sank to its lowest level this year on global growth concerns, and market measures of investor anxiety spiked. The CBOE Volatility index .VIX jumped 10.2 percent and the Euro STOXX 50 volatility index .V2TX rose 4.1 percent.
"I highly doubt the selling will abate today, especially with all the European turmoil going on" said Tom Donino, co-head of trading at First New York Securities.
Gold shot up more than 4 percent at one point on speculation U.S. authorities could unveil another round of monetary easing to boost growth.
Spot gold rose to a high of $1,629.41, before paring some gains. U.S. gold futures for August delivery settled up $57.90 at $1,620.50 an ounce.
Brent crude oil futures tumbled to their lowest since February 2011 to an intra-day low of $97.70, before settling down $3.44 at $98.43.
U.S. July crude fell $3.30 to settle at $83.23 a barrel, its lowest settlement since October 7.
Both Brent and U.S. crude posted their heaviest monthly losses in May since the late 2008 downturn.
The benchmark Thomson Reuters-Jefferies CRB index .CRB, a global commodities benchmark, fell 1.7 percent, after a decline of almost 11 percent in May, the second-largest monthly decline since 2008.
(Additional reporting by Carolyn Cohn in London; Editing by Kenneth Barry)
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