* Larger-than-expected drop in US payrolls pressures stocks
* Bonds up, dollar down vs yen and up vs euro
* ECB holds key rate at record low 1.0 percent as expected
By Caroline Valetkevitch
NEW YORK, July 2 (Reuters) - U.S. and European stocks fell
on Thursday after the U.S. government reported more job losses
than expected in June, denting hopes for a quick economic
recovery.
U.S. Treasuries rose on the news, while the dollar rose
against the euro and fell against the yen.
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. For details, see []
"The (stock) market has been on a high for the last few
months, based on the belief that some of the stimulus seems to
be working," said Gordon Fowler Jr, Chief Investment Officer of
the Glenmede Trust Company in Philadelphia. "But they now have
reason to be disappointed as it doesn't appear that the
stimulus has translated into new jobs."
The pan-European FTSEurofirst 300 <> index fell 2.6
percent to close at 843.0 points.
The Dow Jones industrial average <> was down 173.37
points, or 2.04 percent, at 8,330.69. The Standard & Poor's 500
Index <.SPX> was down 21.22 points, or 2.30 percent, at
902.11. The Nasdaq Composite Index <> was down 44.48
points, or 2.41 percent, at 1,801.24.
Stocks in Brazil, Mexico and other Latin American markets
also were lower. Japan's benchmark Nikkei closed down 63.78
points at 9,876.15, partly on caution ahead of the U.S. jobs
data.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
17/32, with the yield at 3.4811 percent. The euro was down 1
percent at $1.3998 <EUR=> and the dollar slipped 0.6 percent to
95.99 yen <JPY=EBS>.
Demand for the euro also fell after European Central Bank
President Jean-Claude Trichet said euro-zone activity would
likely remain weak for the rest of the year, analysts said.
The European Central Bank, as expected, kept interest rates
unchanged at 1 percent.
Also dimming some investors' views, Moody's downgraded euro
zone member Ireland's ratings to Aa1 from Aaa over concern
about its debt.
OIL FALLS
U.S. crude oil prices fell as the U.S. government jobs data
sparked more concern about oil demand. August crude <CLQ9> was
down $2.52, or 3.64 percent, at $66.79 a barrel.
"It shows an economy still in distress that can only be
echoed in earnings reports after the holidays," said Mike
Fitzpatrick, vice president at MF Global in New York.
G8 AHEAD
Next week's focus could be the Group of Eight summit in
Italy after G8 sources told Reuters that Beijing has asked for
a debate on proposals for a new global reserve currency and the
issue could be referred to briefly in the summit statement.
China's Vice Foreign Minister He Yafei said he had not
heard of such a request but he said China hoped for
diversification of the international currency system in the
future and it would be normal for the issue to be raised at the
G8 summit. For more details see []
(Additional reporting by Jeremy Gaunt in London, and Gene
Ramos, Vivianne Rodrigues and Rachel Chang in New York)
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Hub click on http://blogs.reuters.com/hedgehub)
(Editing by Theodore d'Afflisio)
