US stocks drop after huge rise in jobless rate

New York: US stocks fell the most in two months after the biggest jump in the unemployment rate since 1986 and a $6-a-barrel rise in oil prices heightened concern that the economy will sink into a recession.

General Electric and Citigroup led the retreat after the Labour Department said the jobless rate increased to 5.5 per cent in May. American International Group tumbled to a 10-year low on a Wall Street Journal report that regulators are investigating whether the insurer overstated the value of contracts tied to mortgages. J.C. Penney, General Motors and Continental Airlines dropped as Morgan Stanley predicted crude may climb to $150 within a month.

The Standard & Poor's 500 Index lost 26.02, or 1.9 per cent, to 1,378.03 at 11.18 am in New York and is down 1.5 per cent in the week. The Dow Jones Industrial Average dropped 285.7, or 2.3 per cent, to 12,318.75. The Nasdaq Composite Index decreased 45.92 to 2,504.01. Almost eight stocks declined for each that rose on the New York Stock Exchange.

Soft labour market

"The writing is on the wall that we're in for a softer labour market, which is going to bode negatively for the consumer," said Greg Woodard, a portfolio strategist at Manning & Napier, which manages $18 billion in Fairport, New York. "You have to position a portfolio for below-trend growth in the US"

Every industry in the S&P 500 except for energy companies retreated as a weakening job market added to concern that consumers buffeted by falling home values and higher fuel costs will pull back spending.