Stocks, oil drop after U.S. jobs data

By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. and European stocks fell more than 2 percent on Thursday after U.S. government data showed the U.S. economy shed more jobs than expected in June, dampening the outlook for an economic turnaround.

The U.S. jobs data boosted the safe-haven appeal of Treasuries and the dollar, sending the greenback up against major currencies and driving up the price of U.S. government bonds. Oil prices fell about 4 percent.

After the Standard & Poor's 500 .SPX in the second quarter posted its best performance since the fourth quarter of 1998, investors have been looking for evidence of a sustainable economic recovery before buying stocks further.

The Labor Department said U.S. employers cut 467,000 jobs in June, while the unemployment rate rose to 9.5 percent from 9.4.

The world's biggest economy was expected to have lost 363,000 non-farm jobs, while the unemployment rate was seen ticking up to 9.6 percent.

"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 fell 223.32 points, or 2.63 percent, to close at 8,280.74. The Standard & Poor's 500 Index .SPX was down 26.91 points, or 2.91 percent, at 896.42. The Nasdaq Composite Index .IXIC was down 49.20 points, or 2.67 percent, at 1,796.52.

The New York Stock Exchange extended trading by 15 minutes beyond the regular closing time due to connectivity glitches. U.S. markets will be closed on Friday for the Independence Day holiday, with the Fourth of July falling on Saturday this year.