Published: Friday July 3, 2009 MYT 7:36:00 AM
Updated: Friday July 3, 2009 MYT 9:03:25 AM

US stocks sent reeling by high unemployment rate (Update)

Update includes European, Latin American and Asian markets also sliding

NEW YORK: A dour report on job losses in June sent stocks sharply lower Thursday.

Major stock indexes fell more than 2.6 percent after the government said the U.S. unemployment rate hit a 26-year high.

The Dow Jones industrials closed at their lowest level in six weeks.

Trading on the New York Stock Exchange was extended until 4:15 p.m. Eastern time (2015 GMT) in order to execute customer orders impacted by system irregularities, an NYSE spokeswoman said.

As investors sold off stocks amid fresh concerns about the economy, they moved into the safety of bonds, pushing Treasury yields lower.

Recession-weary employers in the U.S. slashed 467,000 jobs in June, the Labor Department reported, far worse than the 363,000 that economists expected and a grim signal that the path to recovery will be bumpy.

The jobless rate rose to 9.5 percent from 9.4 percent in May.

The report - one of the most closely watched economic indicators - disappointed investors who had become encouraged by positive signs recently that key areas of the economy including housing and manufacturing were showing modest signs of improvement.

The stock market rallied furiously this spring off of 12-year lows beginning in early March on hopes for a recovery, but the upward momentum stalled in mid-June as doubts began to emerge about whether the economy had really found a bottom.

The June jobs report was the latest blow to the market's confidence.

"There's more and more evidence mounting against this rally continuing," said Doug De Groote, a managing director at United Wealth Management.

Consumers are likely to lead the nation out of the ongoing recession, but that won't happen if more people are losing their jobs, he said.

Shares of consumer products companies were among the hardest hit Thursday.

The Dow Jones industrials lost 223.32, or 2.6 percent, to 8,280.74, the lowest close since May 22.

It was the average's worst day since April 20.

The Standard & Poor's 500 index fell 26.91, or 2.9 percent, to 896.42.

The Nasdaq composite index fell 49.20, or 2.7 percent, to 1,796.52.

The Russell 2000 index of smaller companies fell 19.61, or 3.8 percent, to 497.85.

Meanwhile a gauge of volatility in the stock market, the Chicago Board Options Exchange Volatility Index, or VIX, rose 1.66, or 6.3 percent, to 27.88 Thursday afternoon.

Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange.

Volume came to a relatively low 733.6 million shares ahead of the holiday weekend, compared with 951.1 million shares traded at the same point Wednesday.

Markets will be closed Friday in observance of the Independence Day holiday.

Light volume can lead to more volatile swings in trading.

The market's recent rally pushed stock prices back to reasonable levels after they were severely undervalued, said Tim Courtney, chief investment officer at Burns Advisory Group.

With stocks prices back in more normal pricing ranges, "they look less cheap, so bad news like this really starts to sway prices," Courtney said of the unemployment report.

Overseas markets also fell after a report showed unemployment in Europe rose to a 10-year high in May.

"This is part of the market recovery," said Roy Williams, CEO of Prestige Wealth Management.

"You're going to get bad news." Williams predicted the unemployment rate is likely to reach 11 percent.

As stock prices fell across the board, other signs of investor unease emerged.

Treasury prices rose, driving the yield on the 10-year note down to 3.50 percent from 3.54 percent late Wednesday.

An upbeat report about May factory orders was not enough to boost traders' confidence amid the weak employment numbers.

The Commerce Department said total orders rose 1.2 percent in May, better than the 0.8 percent increase that economists had expected.

Markets kicked off the third quarter on Wednesday with gains after getting some reassuring data on manufacturing and housing.

Traders were encouraged by a report showing more stable manufacturing activity and another indicating the fourth straight monthly rise in pending home sales. - AP

Meanwhile other global markets also fell sharply Thursday after worse than expected U.S. jobs and Europe reined in investor hopes of a swift end to recession.

In Europe, the FTSE 100 index of leading British shares closed down 106.44 points, or 2.5 percent, to 4,234.27 while Germany's DAX fell 186.95 points, or 3.8 percent, to 4,718.49.

The CAC-40 in France was 100.59 points, or 3.1 percent, lower at 3,116.41.

"The heavy loss of jobs in June is a warning that the road to recovery will be bumpy, but doesn't yet indicate that we have gone off the track," said Nigel Gault, chief U.S. economist at IHS Global Insight.

Jobs data were downbeat in Europe as well, as unemployment in the 16 countries that use the euro spiked to a ten-year high in May, reinforcing concerns that any recovery will take time with so many people out of work.

Eurostat, the statistics office of the EU, said the seasonally-adjusted unemployment rate for the euro zone in May was 9.5 percent, up from April's 9.3 percent.

Since unemployment is a lagging indicator, the number of jobless will likely continue to rise for a while even when the recession officially ends.

Despite recent hopes that the global economic downturn may be easing, investors are fully aware that high unemployment levels will continue to weigh on consumption and sentiment for many months and years.

Earlier, most Asian markets fell, with Tokyo's Nikkei 225 stock average closing down 63.78 points, or 0.6 percent, at 9,876.15, while Hong Kong's Hang Seng fell 200.68 points, or 1.1 percent, to 18,178.05.

Elsewhere, Korea's Kospi closed flat in back-and-forth trade. Markets in Australia and Shanghai gained while Taiwan's benchmark rose 1.4 percent.

Latin American stocks tumbled to six-day lows on Thursday as unemployment hit an unexpected 26-year high in the U.S., the world's biggest economy, potentially delaying a rebound in demand for the export-reliant region's products.

Brazil's Ibovespa index dropped 1 percent to 51,025, a six-day low.

Shares in state-run oil company Petroleo Brasileiro SA lost 1.8 percent and miner Vale SA slipped 0.2 percent as world prices for oil and metals slid.

The two companies comprise nearly a third of the index.

Brazil's currency weakened about 1.5 percent to 1.95 reals to the U.S. dollar, part of what analysts called a natural correction amid the currency's 29 percent rebound against the dollar since hitting a more than three-year low in December.

Mexico's IPC index meanwhile fell 1.9 percent to 24,051, also a six-day low.

Shares in cement maker Cemex SAB fell 5 percent, while electronics retailer Grupo Elektra SA lost 3.6 percent and billionaire Carlos Slim's telecommunications group Carso Global Telecom SAB shed 3.4 percent.

The three companies comprise 18 percent of the index.

The peso slipped about 1 percent to 13.16 against the dollar ahead of congressional elections that are expected to preserve a deeply divided legislature on Sunday.

"The currency should remain burdened by a number of Mexico-specific drags," including a steep recession and the likelihood that its debt will be downgraded, making it harder for Mexico to raise money, RBC Capital Markets said in a note to investors.

"The key wildcard is if the change in Congress meaningfully hurts governability," complicating fiscal reforms and "likely triggering a sovereign credit rating downgrade," RBC said.

The Toronto-based bank expects at least one of the world's three major ratings agencies to downgrade Mexican sovereign debt by the end of this year.

Elsewhere in Latin America, Argentina's Merval index plunged 3 percent 1,562, while Peru's IGBVL index shed 1.4 percent to 13,062, Colombia's IGBC slipped 0.1 percent to 10,010 and Chile's IPSA slipped less than 0.1 percent to 3,104.

Latin American stocks have been pounded by the world economic crisis, which slashed demand for the commodity exports on which many of the region's biggest companies rely.

Yet regional markets have bested gains in the U.S. since March as investors bet that the worst of the crisis was over, reviving appetites for risk and raw materials.

Mexico's IPC has, for example, gained 44 percent and Brazil's Ibovespa 43 percent from their lows on March 3, while the Dow is up 29 percent since its low on March 9. - AP

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