Stocks erase most of 2012 gains after jobs report

NEW YORK (Reuters) - Stocks erased most of the year's gains on Friday after a much weaker-than-expected jobs report added to fears about a global economic slowdown.

The Dow industrials turned negative for the year and the S&P 500 was on track to close at its lowest since early January. The benchmark traded below its 200-day average for the first time in 2012.

The Labor Department said employers created a net 69,000 jobs last month, the weakest in a year and far from the 150,000 new jobs economists had forecast. The unemployment rate rose to 8.2 percent.

The bleak report caps a week that brought soft economic data from China and saw Europe's problems grow as the Spanish bank crisis deepened. A global flight to safety was evidenced in record low yields in U.S. and German government debt as well as a spike in the VIX, a gauge of U.S. equity market anxiety.

"The 10-year yield and VIX are suggesting the vast majority of investors are choosing to panic," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

"It's been pretty clear for the last year that Europe was going to be a drag for the global economy."

Jacobsen views the steep pullback as a buying opportunity and said he would not revisit that view unless the S&P 500 falls below 1,250.

The Dow Jones industrial average <.DJI> lost 241.92 points, or 1.95 percent, to 12,151.53. The S&P 500 Index <.SPX> dropped 28.63 points, or 2.18 percent, to 1,281.70. The Nasdaq Composite <.IXIC> fell 70.26 points, or 2.49 percent, to 2,757.08.

Financial sector stocks were among the worst hit, with the KBW bank index <.BKX> down 4.4 percent, its largest daily drop since early November.

"Most investors don't think the problem in Europe is going to infect the U.S. economy as much as it would the U.S. financial system," said Wells Fargo's Jacobsen.

JPMorgan Chase & Co fell 3 percent to $32.17 and Bank of America Corp was down 4.2 percent to $7.04.

Data released later in the session was less bleak. U.S. construction spending rose 0.3 percent in April and the Institute for Supply Management said its index of national factory activity slipped to 53.5 from 54.8 in April, just missing expectations..

More than five issues fell for every one that rose on both the New York Stock Exchange and the Nasdaq.

In one of the few positive moves of the day, Newmont Mining surged 7.1 percent to $50.52 and Barrick Gold added almost more than 7 percent to $41.82 as gold posted its biggest one-day rise in more than two years.

Homebuilders were among the weakest stocks. Pulte Group plunged 10.8 percent to $8.35 while D.R. Horton lost 8.3 percent to $15.22. The PHLX housing sector index <.HGX> fell 6 percent, but it was still up nearly 14 percent for the year.

(Reporting by Rodrigo Campos, editing by Dave Zimmerman)

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