Stocks plummeted on Thursday as a worse-than-expected slide in June non-farm payrolls fanned caution about economic recovery prospects.

News that U.S. employers shed nearly half a million jobs last month and that the unemployment rate jumped to 9.5 percent, the highest in nearly 26 years, dampened recent hopes that the recession might be abating.

Investors pummeled stocks broadly, but energy, industrials, financials, technology and consumer-oriented shares were among the hardest-hit sectors.

These sectors were at the forefront of the broader market's recent recovery from the 12-year closing lows of early March as investors bet that the worst of the economic slump was over.

At best, the jobs data served as a reality check and signaled that any recovery will not be smooth sailing, analysts said.

Quite frankly, rising unemployment is bad for the entire economy, said Sasha Kostadinov, portfolio manager at Shaker Investments in Cleveland, Ohio. It's not positive for discretionary stocks. It's not positive for financials -- because there's a direct correlation between the high unemployment rate and charge-offs and delinquent payments.

The Dow Jones industrial average <.DJI> sank 173.44 points, or 2.04 percent, to 8,330.62. The Standard & Poor's 500 Index <.SPX> shed 20.91 points, or 2.26 percent, to 902.42. The Nasdaq Composite Index <.IXIC> dropped 42.84 points, or 2.32 percent, to 1,802.88.

At the current pace, the S&P 500 was poised for its third straight weekly drop. But it is still up 33 percent from the 12-year closing low of March 9.

Light volume due to Wall Street's thinly staffed trading desks accentuated Thursday's sell-off. U.S. financial markets will be closed on Friday for the U.S. Independence Day holiday, with July 4th falling on Saturday this year.

On the technology front, International Business Machines Corp tumbled 2.2 percent to $102.56, making the stock the Dow's top drag. Apple Inc , another tech bellwether, slid 1.5 percent to $140.60 and was the Nasdaq's worst drag.

In the energy sector, Exxon Mobil Corp shed 2.5 percent to $68.82 as U.S. front-month crude declined $2.51, or 3.6 percent, to $66.80 a barrel.

The S&P energy index <.GSPE> dropped 3.1 percent.

NRG Energy Inc shares slumped 4.9 percent to $24.78 after Exelon Corp raised its hostile takeover bid for the independent power producer by more than 12 percent to $7.45 billion, ahead of NRG's annual meeting.

Among consumer-oriented stocks, department store operator Macy's Inc lost nearly 5 percent to $11.16, while the S&P retail index <.RLX> fell 3.5 percent.

Housing stocks were not spared, with the Dow Jones U.S. home construction index <.DJUSHB> down 2.7 percent. The S&P 500's consumer discretionary sector<.GSPD> dropped 3.2 percent.

In deal news, healthcare giant Johnson & Johnson said it agreed to pay $1 billion for an 18.4 percent stake in Elan Corp plc and will buy most rights to the Irish company's portfolio of experimental drugs to treat Alzheimer's disease.

Elan's U.S.-traded shares shot up about 13 percent to $7.90 on the New York Stock Exchange, while J&J's stock, a Dow component, fell 1.8 percent to $56.04.

Data showing U.S. factory orders were better-than-expected in May was overshadowed by the bleak news on the labor market.

(Editing by Jan Paschal)