Bleak payrolls report mauls Wall St; volume thin

By Ellis Mnyandu

NEW YORK (Reuters) - Stocks tumbled on Thursday, driving the S&P 500 down to its third-straight weekly loss, as a steeper-than-expected slide in June non-farm payrolls revived caution about economic recovery prospects.

News that U.S. employers shed nearly half a million jobs last month and the unemployment rate jumped to 9.5 percent, the highest in nearly 26 years, dampened recent hopes that the recession might be abating.

Investors pummeled stocks across the board, but energy, industrials, financials, technology and consumer-oriented shares were among the hardest-hit sectors.

These sectors were at the forefront of the broader market's recent recovery from the 12-year closing lows of early March as investors bet that the worst of the economic slump was over.

All told, the jobs data served as a reality check and signaled that any recovery will not be smooth sailing, analysts said.

"Quite frankly, rising unemployment is bad for the entire economy," said Sasha Kostadinov, portfolio manager at Shaker Investments in Cleveland, Ohio. "It's not positive for discretionary stocks. It's not positive for financials -- because there's a direct correlation between the high unemployment rate and charge-offs and delinquent payments."

The Dow Jones industrial average .DJI dropped 223.32 points, or 2.63 percent, to 8,280.74. The Standard & Poor's 500 Index .SPX slid 26.91 points, or 2.91 percent, to 896.42. The Nasdaq Composite Index .IXIC sank 49.20 points, or 2.67 percent, to 1,796.52.

The S&P 500 fell for a third straight week. But it's still up 32.5 percent from the 12-year closing low of March 9.