Paralysis in the U.S. jobs market reinforced fears of recession on Friday, driving investors out of stocks and into the safety of bonds, gold and the Swiss franc.
World stocks fell nearly 2 percent after the U.S. Labor Department said employers added no new jobs last month and July's figure was revised lower.
The biggest reaction came in the U.S. Treasuries market, where the yield on the 30-year bond hit two-and-a-half-year lows on growing bets the dismal data will compel the Federal Reserve to take additional steps to boost the economy.
After a treacherous August of out-sized market volatility, the jobs report feeds worries that September could bring more of the same, especially if economic data rekindles fears of another recession.
There are a lot of confidence issues in the marketplace; the jobs number only made things worse, said Sal Arnuk, co-manager of trading at Themis Trading in Chatham, New Jersey.
There is now a growing expectation the Federal Open Market Committee will extend the maturity of its $1.65 trillion Treasuries holdings at its September 20-21 policy meeting. The intended effect would be to push rates lower throughout the economy in an attempt to ignite consumer demand.
In a note, Goldman Sachs economists said they expect the Fed will announce plans to lengthen the average maturity of its portfolio, with sales of relatively short-dated Treasuries and purchases of relatively long-dated Treasuries.
Gold futures rose as much as 3.0 percent, climbing just shy of $1,885 an ounce.
The 30-year Treasury bond soared three points in price, briefly bringing its yield to its lowest level since February 2009.
At noon EDT (1600 GMT), Wall Street's Dow Jones industrial average markets/index?symbol=us%21dji>.DJI was down 174.37 points, or 1.52 percent, at 11,319.20. The Standard & Poor's 500 Index .SPX was down 20.25 points, or 1.68 percent, at 1,184.17. The Nasdaq Composite Index .IXIC was down 39.28 points, or 1.54 percent, at 2,506.76.
This (jobs) report will certainly strengthen the case for the doves on the (Federal Open Markets) Committee going into the next meeting later this month,' said Millan Mulraine, senior U.S. macro strategist with TD Securities in New York.
The MSCI world equity index was down 2 percent while European stocks finance/markets/index?symbol=gb%21FTPP>.FTEU3 slid 2.5 percent. Emerging stocks .MSCIEF fell 1.4 percent.
Benchmark 10-year Treasury notes were up 24/32 in prices, with a yield at 2.05 percent, down about 8 basis points on the day. The 10-year yield is within striking distance of 1.976 percent, an intraday low set in mid-August, according to Tradeweb, and a level not seen in at least 60 years.
In Treasury Inflation Protected Securities trading, the yield on 10-year TIPS touched minus 0.02 percent, down 7 basis points from late Thursday. This signaled that traders have slashed their expectations for long-term U.S. economic growth and inflation.
Bund futures rose 1 percent, hitting a record high on safe-haven demand.
The Swiss franc was up 1.2 percent at 0.7855 to the dollar, after hitting session highs at 0.7959.
Crude oil in New York was down 2 percent at just above $87 a barrel after slipping nearly 4 percent earlier to below $86 on worries that a weaker U.S. economy would hit energy demand. The United States is the world's No. 1 energy consumer.
The euro was at around $1.420, having hit a three-week low of $1.418 earlier on confirmation that Greece will miss its 2011 deficit target of 7.6 percent and uncertainty over Italy's commitment to austerity measures.
(Reporting by Richard Leong, Angela Moon and Joshua Schneyer in New York and Barbara Lewis and Natsuko Waki in London; Writing by Barani Krishnan; Editing by James Dalgleish and Dan Grebler)