US stocks fell on Friday and bonds spent most of the session sliding after the government reported that employers kept cutting payrolls in July, although the jobless rate fell.
The yield on the benchmark 10-year US Treasury note hit a one-year high of 4.59 percent when its price plunged after the unemployment rate unexpectedly dropped to 6.2 percent in July from 6.4 percent in June.
By the close, the 10-year note and 30-year bond had recovered their earlier losses to end Friday's session higher. But short-term Treasury prices edged down.
A report on manufacturing released Friday morning also disappointed investors, who had expected the data to show more evidence of a pickup in the economy.
Without the sought-after signs that the rocky economy is making a solid comeback, investors sold equities and unloaded bonds.
"The market is stuck, and it's going to stay stuck until we get a definitive and clear direction as to whether this economic recovery is taking hold or not," said Jack Francis, co-head of domestic equity trading at UBS Investment Bank.
All three stock indexes fell for the week. The Dow Jones Industrial Average snapped a four-week string of gains. The Dow dropped 1.4 percent, while the NASDAQ dipped 0.9 percent and the S&P 500 lost 1.9 percent.
The dollar slipped against the euro and the yen, while gold prices hit two-week lows.
But oil futures prices in New York skyrocketed to seven-week highs above US$32 a barrel as a gasoline pipeline blaze near Iraq's biggest refinery added to oilfield looting concerns.
The Dow Jones Industrial average slid 79.83 points, or 0.86 percent, to close at 9,153.97. The broader Standard & Poor's 500 Index shed 10.16 points, or 1.03 percent, to 980.15. The technology-laced NASDAQ Composite Index slipped 19.40 points, or 1.12 percent, to end at 1,715.62, based on the latest available figures.
Wall Street got its first shock of the day when the Labor Department said US companies cut 44,000 jobs from their payrolls in July -- surprising economists who expected a gain of 18,000 jobs.
The day's next big economic number -- the Institute for Supply Management's closely watched survey of the US manufacturing sector -- failed to brighten Wall Street's mood. The ISM manufacturing index rose to 51.8 last month from 49.8 in June. A reading above 50 signals growth.
Bank and brokerage shares fell, led by JP Morgan Chase & Co, as the bond market's decline forced analysts to question the future of recently strong trading profits. JP Morgan shares sank US$1.69 or 4.8 percent to US$33.36 and were the Dow's biggest percentage loser.
Bonds in turmoil
US Treasury prices spent most of Friday's session sharply lower as investors in mortgage-backed securities sold bonds to counter risks created by rising rates.
Investors worry that sharp gains in bond yields and US interest rates will pump up borrowing costs and derail the economy's fragile return.
At the New York close at 2100 GMT, the price of the benchmark 10-year Treasury note was up 5/32 at 93 and 31/32, while its yield fell to 4.39 percent from 4.41 percent at Thursday's close.
The 30-year bond gained 20/32 to 100 and 25/32, while its yield fell to 5.32 percent from 5.36 percent on Thursday.
In contrast, the two-year note inched down 2/32 to 99 and 15/32, yielding 1.78 percent, up from 1.75 percent the previous day. The five-year note was off 1/32 at 97 and 10/32 to yield 3.24 percent.
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