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NEW YORK Major stock markets and the dollar fell on Wednesday after unexpectedly weak growth in U.S. private-sector jobs and services dented optimism about the world's largest economy.
Oil prices slumped 3 percent, the steepest daily drop in five months, as U.S. crude inventories swelled to their highest since 1990. Signs of a struggling U.S. economy also stoked worries about energy demand. U.S. gasoline fell more than 4 percent.
News the Pentagon was sending a missile defense system to Guam in the coming weeks, with U.S. Defense Secretary Chuck Hagel citing a "real and clear" danger from North Korea, added to investor caution. North Korea, meanwhile, said it had "ratified" a merciless attack against the United States, potentially involving a "diversified nuclear strike".
U.S. companies hired at the slowest pace in five months in March as recent strong demand for construction jobs evaporated, while growth in the vast services sector slowed, suggesting the economic recovery could be hitting a soft patch.
The data sparked concern that the recent pick-up in U.S. economic growth is losing momentum and provoked caution among investors ahead of Friday's all-important government report on employment for March.
"With some weaker economic data, you're seeing some risk-off action going on today. People are paring positions across the board ahead of the jobs number Friday," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
Headlines on North Korea add "another risk element to the market," he said.
Analysts polled by Reuters forecast U.S. nonfarm payrolls grew by 200,000 in March, with the unemployment rate seen holding steady at 7.7 percent.
The MSCI world stocks index .MIWD00000PUS slipped 0.7 percent to 357.51.
Wall Street stocks fell, with the S&P 500 and Nasdaq losing more than 1 percent as the sharp drop in oil hit energy shares.
The Dow Jones industrial average .DJI dropped 111.66 points, or 0.76 percent, to close at 14,550.35. The Standard & Poor's 500 Index .SPX dropped 16.56 points, or 1.05 percent, to end at 1,553.69. The Nasdaq Composite Index .IXIC dropped 36.26 points, or 1.11 percent, to 3,218.60.
Some strategists said momentum for the market to move higher remains. The S&P has been near an intraday record level of 1,576.09 for the past several sessions, inching to within three points of that level on Tuesday before pulling back.
European shares .FTEU3 lost 0.9 percent to close at 1,193.30 a day after surging 1.3 percent.
OIL RETREATS AS SUPPLY BUILDS
Brent shed $3.58 to settle at $107.11 a barrel, while U.S. crude slid $2.74 to settle at $94.45.
Crude oil stocks in the United States rose by 2.7 million barrels last week, according to the U.S. Energy Information Agency, above expectations of a 2.2 million barrel build.
The rise put U.S. commercial inventories at 388.62 million barrels, the most since 1990 and close to the record 391.9 million reached in 1982, the year the EIA started tracking inventories.
The dollar index .DXY, which measures the greenback versus a basket of currencies, dropped 0.2 percent to 82.737.
The euro rose 0.2 percent to $1.2847, while against the yen the dollar fell 0.5 percent to 92.99 yen.
The European Central Bank and the Bank of Japan are both expected to make monetary policy announcements on Thursday.
Analysts said a recent run of weak euro zone data, political turmoil in Italy and concerns over Cyprus could lead ECB President Mario Draghi to strike a dovish tone in his comments after the meeting.
The BOJ is widely expected to ramp up its bond buying and extend the maturities of that debt, although some traders have pared bets against the yen given already hefty short positions.
"There's some event risk associated with the (BOJ) announcement. The concerns over Europe have also intensified as economic data continue to reflect recessionary conditions there," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.
Expectations of further easing drove Japan's Nikkei stocks average up 3 percent .N225 on Wednesday for its biggest one-day rise in almost two months.
The benchmark 10-year U.S. Treasury note was up 13/32 in price, with the yield at 1.8158 percent.
(Additional reporting by Gertrude Chavez-Dreyfuss, Caroline Valetkevitch and Ryan Vlastelica; Editing by James Dalgleish)