Stocks Slide on Worse-Than-Expected Jobs Report

Stocks were weighed down Wednesday by economic reports that put investors' focus back on the weak labor market and the shrinking services sector.

The Dow Jones industrial average fell 39.22 points, or 0.4 percent, to close at 9280.97, while the broader Standard & Poor's 500-stock index fell 2.93 points, or 0.3 percent, to 1002.72. The tech-heavy Nasdaq was down 18.26 points, or 0.9 percent, closing at 1993.05.

The losses were broad based, except in the financial sector, which largely escaped the sell-off. Bank of America's stock had the biggest gains on the Dow, climbing $1.02, or 6.5 percent, to $16.66. Citigroup rose 33 cents, or 10.2 percent, to $3.54.

Investors have been clinging to signs that the economic downturn is easing, sending stocks to their highest levels so far this year. The Dow has jumped more than 40 percent since reaching a 12-year low in March. But some analysts have cautioned that the economic recovery could be bumpy and slow, causing stocks to slide again.

On Wednesday the focus was on a report showing that the number of private-sector jobs fell by 371,000 in July, according to payroll company Automatic Data Processing and Macroeconomic Advisers. That was slightly worse than analysts were expecting and indicated that employers continue to slash jobs, though at a lower rate than earlier this year.

The data "suggest the unemployment rate continues to rocket and household cash flows continue to fall. Not a great outlook for spending, we'd say," said Ian Shepherdson, an economist for High Frequency Economics.

The report is a precursor to the closely watched government labor report that will be released Friday. That report is expected to show employers slashed 300,000 jobs last month, compared with 467,000 in June. The unemployment rate, which is now at 9.5 percent, is expected to rise to 9.7 percent.

Other economics news was mixed. Factory orders in June were up 0.4 percent to $349 billion. Analysts had expected orders to decline.

But the service sector contracted for the 10th consecutive month in July and the pace of decline accelerated, according to the Institute for Supply Management report. The non-manufacturing index fell to 46.4 percent in July compared with 47 percent in June. Analysts had expected the index to improve.

This marks the first decrease in the index since March, according to Wells Fargo.

The report dampens expectations that economic activity will pick up significantly in second half of the year, said Brian Bethune, chief U.S. financial economist for IHS Global Insight. "The bottom line here is that the path from recession to recovery should not be expected to be smooth, and occasional setbacks should not be a surprise," he said.

In other market news, crude oil prices rose 55 cents to settle at $71.97 a barrel on the New York Mercantile Exchange.

Overseas markets were down. London's FTSE and the Dax in Germany fell about 0.5 percent and 1.2 percent, respectively. Japan's Nikkei was down 1.2 percent.