Stocks fell on Friday and were on track for their worst week in two months as disappointing jobs data joined other economic reports pointing to a slowing of the recovery.

Adding to stocks' weaker tone was a technical move that indicated more selling pressure may be ahead. The S&P 500's 50-day moving average broke below its 200-day moving average, a break known as the death cross.

Earlier in the week, the S&P fell below the 1,040 level, viewed by many analysts as a critical support level which it had successfully held several times in the past five months.

It's a tough situation because we knew we were in correction mode. We hoped to hold S&P 1,040 and we didn't and once we didn't, that would be a problem because if 1,040 didn't hold the next stop is 1,000, said Linda Duessel, market strategist at Federated Investors in Pittsburgh.

The Dow Jones industrial average <.DJI> dropped 76.40 points, or 0.78 percent, to 9,656.13. The Standard & Poor's 500 Index <.SPX> lost 7.13 points, or 0.69 percent, to 1,020.24. The Nasdaq Composite Index <.IXIC> dipped 15.00 points, or 0.71 percent, to 2,086.36.

According to technical analysts, a death cross occurs when a shorter-term average falls below a longer-term average. The phenomenon last occurred between the 50- and 200-day moving averages in December 2007, soon after the market began a decline that eventually took the S&P 500 to 12-year lows.

Non-farm payrolls fell in June for the first time this year, the government data showed. It was the latest in a series of economic reports that pointed to a tepid U.S. recovery.

Financials and economically sensitive sectors were the biggest decliners. The S&P 500 financial index <.GSPF> shed 1.3 percent, while consumer discretionary stocks <.GSPD> were down 1.5 percent. GameStop Corp shares slipped 4 percent to $18.31.

Volume was low, with many participants leaving early for the long Fourth of July holiday weekend.

U.S. pharmaceutical stocks were a pocket of strength after a source familiar with the situation said French drugmaker Sanofi-Aventis was preparing an acquisition of $20 billion or more in the United States. Among advancers, Genzyme Corp rose 6.1 percent to $52.88 and Biogen Idec Inc gained 5.3 percent to

The Labor Department reported non-farm payrolls dropped by 125,000, the largest decline since October and affected by the loss of temporary government census jobs.

The unemployment rate fell to 9.5 percent, the lowest level since July, but only because a flood of jobless workers gave up their employment search. Private hiring rose 83,000, the department said, up from the previous month.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)