Stocks fell to their lowest in nearly four months on Friday, while bonds and the dollar bounced off lows after the US government put the nation on heightened security alert because of a high risk of terror attacks.
World oil prices hit fresh two-year highs on concerns of a winter US fuel supply crunch combined with mounting rhetoric against oil supplier Iraq.
US President George W. Bush's warning that "the game is over" for Iraqi President Saddam Hussein and his statement that the UN must make up its mind soon on whether to back its demands that Iraq disarm kept investors on edge.
"It's very difficult to look at just fundamentals right now. There's really no way to interpret this market ex-Iraq," said Brian Pears, head of equity trading at Victory Capital Management. "Until Iraq is out of the way, all people see is the fog that we're shrouded in."
US officials' decision on Friday to raise the nation's threat assessment to the second-highest level due to a higher risk of terror attacks contributed to the market's jitters.
"Stocks have failed to build on this morning's decent jobs data with prices dropping soon after the open amid renewed terrorist threats," said John Simon, stock index futures analyst at TradeSignals.com, a commodity trading adviser.
A closely watched employment report that showed a drop in the unemployment rate and rise in the number of workers on US nonfarm payrolls sparked an early rally, but edgy investors' buying enthusiasm quickly faded.
The blue-chip Dow Jones industrial average fell 65.07 points, or 0.82 percent, to 7,864.23, while the broad Standard & Poor's 500 Index lost 8.46 points, or 1.01 percent, to 829.69. Both indexes closed at their lowest levels since Oct. 10. The technology-loaded NASDAQ Composite Index fell 19.27 points, or 1.48 percent, to 1,282.46, its worst finish since Oct. 17.
Declining stocks outpaced advancers by a ratio of about 2 to 1 on the New York Stock Exchange and nearly 2 to 1 on Nasdaq. More than 1.2 billion shares changed hands on the Big Board and more than 1.2 billion on NASDAQ in moderate trading.
All three key market gauges racked up their fourth straight week of declines, with the Dow down 2.4 percent and the S&P 500 and the Nasdaq both down about 3 percent for the week, pushing them ever closer to multiyear lows hit in early October.
Companies ranging from computer maker Dell Computer Corp to party goods chain Party City Corp are cautioning that this year will be another difficult year against the murky geopolitical backdrop.
The government said shortly before the open that the unemployment rate slipped to a four-month low of 5.7 percent from 6 percent in December. The number of workers on US nonfarm payrolls rose 143,000, more than double the 70,000 economists had forecast.
Economists welcomed the data as an indication the economy could be shaking off its persistent weakness. But some played down the report, saying it might have been skewed by seasonal fluctuations related to the volatile retail job market.
Bond prices plunged immediately after the jobs report, but quickly rebounded as doubts about the data's reliability set in and news of the government's warning about the heightened risk of an attack scared investors back into bonds.
Dell Computer Corp. joined a flood of companies giving cautious corporate outlooks. The No. 2 personal computer maker fell US$0.68, or nearly 3 percent, to US$23.34 after saying on Thursday that corporate spending on technology will be soft this year due to the weak economy and concerns about a potential US war with Iraq.
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