WASHINGTON (REUTERS) - US stocks dropped on Friday (June 3), led by banks, after much weaker-than-expected jobs data for May pointed to labour market weakness and raised doubts if the economy was healthy enough to absorb an interest rate hike in the coming months.
The Labour Department said non-farm payrolls increased by only 38,000 last month, the smallest gain since September 2010 and well below economists' forecast of 164,000.
The jobless rate fell three-tenths of a percentage point to 4.7 per cent, the lowest since November 2007. The decrease was in part due to a people dropping out of the labour force. "It's a fairly disastrous payroll report," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.
Traders are now pricing in only a 2 per cent chance of the Federal Reserve increasing rates in June, sharply lower than the 20 per cent probability just before the payrolls data. "June's definitely off the table. The Fed will definitely want to see a cleaner read on payrolls before taking rates higher again," Mr Goldberg said.
The S&P 500 financial index tumbled 1.8 per cent and was on track for its biggest one-day fall in about two months.
The dollar index sank 1.4 per cent, touching a one- month low of 94.19, against a basket of major currencies.
At 9.37am ET (9.37pm Singapore time) the Dow Jones industrial average was down 85.12 points, or 0.48 per cent, at 17,753.44.
The S&P 500 was down 9.35 points, or 0.44 per cent, at 2,095.91 and the Nasdaq Composite was down 24.62 points, or 0.5 per cent, at 4,946.75.
Half of the 10 major S&P sectors were lower. Financial stocks were the biggest losers, led by banks, which benefit from higher interest rates.
Goldman Sachs, Wells Fargo, JPMorgan, Bank of America and Citigroup fell between 2-4 per cent.
JPMorgan was the biggest drag on the S&P 500, while Goldman Sachs weighed the most on the Dow.