Stocks slump as jobs gain stirs fear of higher rates Dollar surges, bonds fall on positive news

NEW YORK — NEW YORK -- U.S. stocks slid yesterday on concern that a strong May employment report puts more pressure on the Federal Reserve to raise interest rates.

Although the Dow Jones industrial average ended marginally higher, declining common stocks overwhelmed advancers almost 2-to-1 on the New York Stock Exchange.


"We're looking at a Fed tightening sooner rather than later," said David Shulman, chief investment strategist at Salomon Brothers Inc.

"I've been saying since April that the economy is stronger rather than weaker and inflation is an issue," he said.


Yesterday morning, the Labor Department said the economy added 209,000 nonfarm jobs in May, surpassing economists' expectations for a gain of 136,000.

The unemployment rate dropped to 6.9 percent, from 7 percent; economists had expected the rate to stay unchanged.

The Dow industrials inched up 0.27, to 3,545.14, ending above the day's low of 3,530.47.

The Standard & Poor's 500 Index shed 2.43, to 450.06, while the Nasdaq Composite Index dropped 4.21, to 702.01. The American Stock Exchange Market Value Index added 0.04, to a record 440.95.

Treasury bonds tumbled almost 1 point on the jobs report from fear that, if the economy heats up, interest rates could rise. In late trading yesterday, the yield on the benchmark 30-year bond was up five basis points at 6.91 percent.

Although the employment report is only one set of statistics in an otherwise dismal string of economic news, "stocks are reacting only to the bond market," said John Blair, head equity trader at NatWest Securities.

"I don't think one set of data means enough to say we're going into a renewed expansion," Mr. Blair said.

The robust increase in U.S. employment also caught currency traders off guard and sent the dollar soaring.


The dollar jumped more than three pfennigs to 1.6267 marks, from 1.5965 marks Thursday. It rose to 107.82 yen, from 107.20 yen. The British pound slumped against the dollar, meantime, falling almost four cents to $1.5095, its lowest level in two months.

But the movement in the major stock market measures belied the severity of yesterday's decline, analysts said.

"The market's getting clobbered," said Anthony Dwyer, chief investment strategist at Sherwood Securities. "The manufacturing sector is doing well, as it should. That's why the Dow is holding up better than the broader market."

Retail stores, major regional banks, and health-care stocks fell the most in the S&P; 500. Retail stocks were lower for a second session following Thursday's reports of weak May sales from some of the nation's biggest retailers.

Auto, telecommunications, broadcasting, and gold stocks gained the most yesterday. Gold for August delivery rose $2.30 an ounce, to $378.50.