NEW YORK The dollar tumbled to a 15-year low and stocks fell sharply on Friday after a report showed U.S. employers cut payrolls for the first time in four years, stoking fears of a recession.
Government bonds soared, pushing yields to a two-year low, as investors scrambled for safe-haven assets on fears that the faltering U.S. housing market and a credit crisis was draining life from the wider economy.
U.S. employers cut payrolls by 4,000 in August, compared with economists' forecasts for an increase of 110,000 jobs.
"It's dreadful," said Michael Metz, chief investment strategist at Oppenheimer & Co.
All three major U.S. stock indexes were down more than 1 percent.
The Dow Jones industrial average .DJI was down 153.48 points, or 1.15 percent, at 13,209.87. The Standard & Poor's 500 Index .SPX was down 18.79 points, or 1.27 percent, at 1,459.76. The Nasdaq Composite Index .IXIC was down 39.17 points, or 1.50 percent, at 2,575.15.
European stocks also fell sharply to session lows following the jobs report. The FTSEurofirst index .FTEU3 was down more than 1.7 percent in late trade.
Metz said he expected that the Federal Reserve would cut interest rates at its September 18 meeting. "Frankly I wouldn't be surprised if it were sooner than the 18th, and I wouldn't be surprised if it were 50 basis points.
U.S. government debt prices soared, pushing short-dated yields to two-year lows as investors priced in deeper cuts from the Fed.
The two-year note, which responds closely to expectations for central bank interest rate moves, traded up 10/32 in price for a yield of 3.93 percent, a two-year low and down from 4.10 percent late on Thursday.
The benchmark 10-year note's price jumped 28/32 for a yield of 4.405 percent, down from 4.49 percent shortly before the jobs report and versus 4.52 percent late on Thursday and the lowest since early 2006. Bond yields and prices move inversely.
The dollar index, which measures the greenback against a basket of currencies, fell to 79.895 .DXY, its lowest level in 15 years and 0.7 percent below its level late Thursday.
"The whisper numbers were low but this print blows the whisper numbers away," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.
The dollar dropped 1.4 percent against the yen to 113.82. and the euro gained 0.7 percent against the dollar to near
(Additional reporting by John Parry, Kristina Cooke and Steven C. Johnson)