By Nancy Trejos
Washington Post Staff Writer
Thursday, January 8, 2009

Stocks tumbled yesterday as new employment data showed a loss of 693,000 private-sector jobs in December and key companies reported layoffs and poor earnings forecasts.

The Dow Jones industrial average closed down 2.7 percent, or 245.40 points, to 8769.70. The Standard & Poor's 500-stock index was down 3 percent, or 28.05 points, to 906.65. And the Nasdaq composite index dropped 3.2 percent, or 53.32 points, to 1599.06.

An Energy Department report showing that U.S. oil reserves were much greater than expected sent energy prices tumbling. Crude oil for February delivery fell 12 percent, to $42.63 a barrel, on the New York Mercantile Exchange.

The ADP Employer Services monthly payroll survey, which foreshadows the government's monthly employment report, was also worse than expected, reversing what had been a promising rally for the markets since the beginning of the year. Most of the job losses were in small and medium-size businesses, a sign that the recession has now spread beyond manufacturing and housing-related activities.

"This is shockingly awful," said Ian Shepherdson, chief U.S. economist with the High Frequency Economics consulting firm. He predicted a loss of about 700,000 jobs when the government releases its payroll data tomorrow. That would be the biggest drop in 59 years.

Peter I. Cardillo, chief market economist with New York-based Avalon Partners, said he thinks the government report, which uses different methodology than ADP, will show a narrower loss of 400,000 to 450,000 jobs.

Either way, the next few weeks could be rocky for investors as more economic data are released and companies report earnings.

"I suspect until we get through the bulk of major economic numbers, and of course the granddaddy report Friday, and the earnings season, this market will stay within a defensive trading range," Cardillo said.

Already, some key companies are floundering.

Media giant Time Warner said yesterday that it expects to record $25 billion in write-downs in the fourth quarter, resulting in an operating loss for the year. Intel, the world's largest chipmaker, reported that it expects a 23 percent year-over-year drop in fourth-quarter sales. Also yesterday, the U.S. dollar weakened, with the U.S. Dollar Index, which measures the greenback's value against a basket of six foreign denominations, falling 0.79 percent.