US STOCKS-Bleak payrolls report mauls Wall St; volume thin

* June payrolls data fuels worry about recovery

* Broad sell-off sinks market; energy, tech, banks wilt

* Dow off 2.6 pct; S&P off 2.9 pct; Nasdaq off 2.7 pct

* For up-to-the-minute market news click [STXNEWS/US]
(Adds volume)

By Ellis Mnyandu

NEW YORK, July 2 (Reuters) - U.S 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. For details, see
[ID:ID:nN01210643]

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.

For the week, the blue-chip Dow average slipped 1.9
percent, while the S&P 500 dropped 2.5 percent and the Nasdaq
lost 2.3 percent.

Light volume due to Wall Street's thinly staffed trading
desks accentuated Thursday's sell-off.

Additionally, the New York Stock Exchange (NYX.N: Quote, Profile, Research) was hit
by connectivity glitches that affected orders originating from
the trading floor. The NYSE extended its regular close from 4
p.m. to 4:15 p.m. (2015 GMT) to execute customer orders
affected by system irregularities.

U.S. financial markets will be closed on Friday for the
U.S. Independence Day holiday, with July 4th falling on
Saturday this year.

IBM AND EXXON SLIDE

On the technology front, shares of International Business
Machines Corp (IBM.N: Quote, Profile, Research), a technology services giant, tumbled 3
percent to $101.73, making the stock the Dow's top decliner.

Apple Inc (AAPL.O: Quote, Profile, Research), another tech bellwether and the maker
of the iPhone, slid 2 percent to $140.02. It was the Nasdaq's
worst drag.

In the energy sector, Exxon Mobil Corp (XOM.N: Quote, Profile, Research) shed nearly
3 percent to $68.49, while the S&P energy index
dropped 3.6 percent. U.S. front-month crude CLc1 declined
$2.58, or 3.7 percent, to settle at $66.73 a barrel.

NRG Energy Inc (NRG.N: Quote, Profile, Research) shares slumped 4.8 percent to
$24.80 after Exelon Corp (EXC.N: Quote, Profile, Research) raised its hostile takeover
bid for the independent power producer by more than 12 percent
to $7.45 billion, ahead of NRG's annual meeting.
[ID:nN02545292]

Among consumer-oriented stocks, department store operator
Macy's Inc (M.N: Quote, Profile, Research) lost 6.3 percent to $11, while the S&P retail
index fell 4 percent.

Housing stocks were not spared, with the Dow Jones U.S.
home construction index .DJUSHB down 3 percent. The S&P
500's consumer discretionary sector dropped 3.7
percent.

In deal news, healthcare giant Johnson & Johnson (JNJ.N: Quote, Profile, Research)
said it agreed to pay $1 billion for an 18.4 percent stake in
Elan Corp plc (ELN.I: Quote, Profile, Research) and will buy most rights to the Irish
company's portfolio of experimental drugs to treat Alzheimer's
disease. [ID:nL2891369]

Elan's U.S.-traded shares (ELN.N: Quote, Profile, Research) jumped 8.6 percent to
close at $7.60 on the New York Stock Exchange, while J&J's
stock, a Dow component, fell 1.9 percent to $55.98.

Data showing U.S. factory orders were better-than-expected
in May was overshadowed by the bleak news on the labor market.
[ID:nN0220084]

On the New York Stock Exchange, only about 733.6 million
shares changed hands, way below last year's estimated daily
average of 1.49 billion, while on the Nasdaq, about 1.96
billion shares traded, also below last year's daily average of
2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by
a ratio of 4 to 1, while on the Nasdaq, about five stocks fell
for every one that rose.
(Editing by Jan Paschal)