U.S. stocks fell 2 percent on Friday as a disappointing May payrolls report and another possible debt crisis, this time in Hungary, intensified fears about the stability of the economic recovery.
The Labor Department said 431,000 jobs were added to the U.S. economy, but a large portion of those were temporary workers hired for the U.S. Census. Wall Street had expected payrolls to rise by 513,000.
The sharp decline follows Wall Street's first back-to-back advances since late April.
If it was just the jobs number we would have given back 100 to 150 points, but if you throw Europe on top of that, we could be worse off, said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. in San Francisco.
Worries mounted that Europe's sovereign debt troubles could spread after a Hungarian official said the country was at risk of a Greek-style crisis, sending the euro to a four-year low against the dollar.
Further exacerbating the pressure on Wall Street were concerns from Europe about Societe Generale's derivatives business.
Financial stocks were among the worst performers, with both the KBW Banks index <.BKX> and S&P Financial sector <.GSPF> down more than 2 percent. JPMorgan Chase & Co shed 1.5 percent to $38.53, while Bank of America Corp dipped 1.5 percent to $15.57.
The Dow Jones industrial average <.DJI> dropped 229.44 points, or 2.24 percent, to 10,025.84. The Standard & Poor's 500 Index <.SPX> fell 23.36 points, or 2.12 percent, to 1,079.47. The Nasdaq Composite Index <.IXIC> lost 45.49 points, or 1.98 percent, to 2,257.54.
There have been nine days since 1998 when payrolls data was reported and the SPDR S&P 500 exchange-traded fund (ETF) opened down 1 percent or more, according to Bespoke Investment Group. On those days, the fund rose an average of 1.2 percent from open to close.
The ETF was down 1.6 percent on Friday.
Chris Burba, a short-term market technician at Standard & Poor's in New York, cited a support level for the S&P 500 at 1,070, a recent low for the index. If the S&P closes below that level, he said, the risk of sustaining a decline beneath the February low would increase.
BP Plc avoided a decision on whether to pay its next quarterly dividend as it faced heavy political pressure to put the payout on hold while it fights the oil spill in the Gulf of Mexico. BP's U.S.-listed shares fell 3.5 percent to $37.87.
Dow component McDonald's Corp slipped 0.7 percent to $67.39 after it recalled 12 million Shrek-themed drinking glasses. U.S. officials warned consumers to stop using them because they contain the toxic metal cadmium.
Decliners outnumbered advancers on the New York Stock Exchange by a ratio of about 7 to 1, while about 5 stocks fell on the Nasdaq for every one that rose.
(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)