US STOCKS-Economic worries lead market lower after jobs data

(Updates to midday)

By Kristina Cooke

NEW YORK, March 7 (Reuters) - U.S. stocks fell on Friday after a government report showed employers unexpectedly cut jobs in February at the steepest rate in nearly five years, compounding fears of recession in the world's largest economy.

Big industrial companies seen as economic bellwethers such as heavy-equipment maker Caterpillar (CAT.N: Quote, Profile, Research) and conglomerate General Electric (GE.N: Quote, Profile, Research) were among the biggest drags.

Energy companies also felt the pinch from economic concerns, even as oil set a record high. Exxon Mobil (XOM.N: Quote, Profile, Research) and Chevron (CVX.N: Quote, Profile, Research) weighed on the S&P 500 and the Dow.

The jobs data, higher oil and problems in the financial system show "we have a long way to go until the economy is back up and running at full-tilt. You're looking for a silver lining and you just can't find it," said Edward Bretschger, director of equity sales and trading at Calyon Securities in New York.

The Dow Jones industrial average .DJI was down 113.97 points, or 0.95 percent, at 11,926.42. The Standard & Poor's 500 Index .SPX was down 9.29 points, or 0.71 percent, at 1,295.05. The Nasdaq Composite Index .IXIC was down 8.51 points, or 0.38 percent, at 2,211.99.

Struggling bond insurers were again in the spotlight. Shares of Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) fell 5.9 percent to $6.98 after it sold $1.5 billion of shares and convertibles to protect the company's credit ratings, but investors who wanted the company to raise more were disappointed.

But financial shares were slightly higher after the Federal Reserve announced a revamped measure to ease strains in the credit markets. Analysts also noted that investors who had bet the sector would fall further reversed their "short" positions.