U.S. unemployment rate falls to 3.5%
AMD leads chipmakers lower after revenue warning
Technology leads sector declines on S&P 500
FedEx drops on report of plans to reduce volume forecasts
Indexes down: Dow 2.01%, S&P 2.65%, Nasdaq 3.60%
(Adds analyst comment, updates prices)
By Herbert Lash, Shreyashi Sanyal and Ankika Biswas
Oct 7 (Reuters) - Wall Street fell sharply on Friday after a solid jobs report for September increased the likelihood the Federal Reserve will barrel ahead with an interest rate hiking campaign many investors fear will push the U.S. economy into a recession.
The Labor Department reported the unemployment rate fell to 3.5%, lower than expectations of 3.7%, in an economy that continues to show resilience despite the Fed's efforts to bring down high inflation by weakening growth.
Nonfarm payrolls rose by 263,000 jobs, more than the 250,000 figure economists polled by Reuters had forecast. Money markets raised to 94.1% the probability of a 75 basis-point rate hike when Fed policymakers meet on Nov. 1-2, up from 83.4% before the data.
The job gains, lower unemployment rate and continued healthy wage growth point to a labor market Fed officials will likely continue to see as keeping inflation too high.
In the latest of a steady stream of hawkish messages by policymakers, New York Fed President John Williams said more rate hikes were needed to tackle sticky inflation in a process that will also likely increase unemployment.
"Rates have gotten too extreme," said Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis. "They are risking doing some harm they don't really need to do, in my opinion. But they're under pressure, and they see it differently."
The Fed should not take comfort in the historically tight labor market because when the unemployment rate begins to rise, a leading indicator of a recession, it does so quickly, said Joseph LaVorgna, chief U.S. economist at SMBC Nikko Securities.
"We haven't felt the full effects of the tightening," he said. "They're going to keep going until eventually this thing turns over, and when it turns over you won't be able to slow the momentum."
Despite a hefty two-day rally earlier in the week, Friday's nosedive put the S&P 500 on track for its fourth straight weekly decline, while the Dow and the Nasdaq were poised for their seventh consecutive weekly declines.
By 2:12 p.m. EDT, the Dow Jones Industrial Average fell 602.47 points, or 2.01%, to 29,324.47, the S&P 500 lost 99.25 points, or 2.65%, to 3,645.27 and the Nasdaq Composite dropped 398.87 points, or 3.6%, to 10,674.44.
Ten of the 11 major S&P 500 sectors declined more than 1%, with the technology sector leading the fall, down 4.0%. Energy was the sole gainer, rising 0.1%.
The Philadelphia SE Semiconductor index shed 5.9% after a revenue warning from Advanced Micro Devices signaled a chip slump could be worse than expected. The index was poised for its biggest single-day percentage decline in nearly a month.
AMD shares fell 12.3%, the largest decliner on the Nasdaq 100, as its third-quarter revenue estimates were about $1 billion lower than previously forecast.
Peers Qualcomm Inc, Intel Corp, ON Semiconductors, Lam Research and Nvidia Corp shed between 2.44% and 6.63%.
FedEx Corp lost 1.5% after an internal memo seen by Reuters showed the division that handles most e-commerce deliveries expects to lower volume forecasts as its customers plan to ship fewer holiday packages.
Declining issues outnumbered advancing ones on the NYSE by a 5.67-to-1 ratio; on Nasdaq, a 4.19-to-1 ratio favored decliners.
The S&P 500 posted 2 new 52-week highs and 64 new lows; the Nasdaq Composite recorded 20 new highs and 273 new lows (Reporting by Herbert Lash in New York Additional reporting by Ankika Biswas and Shreyashi Sanyal in Bengaluru Additional reporting by Bansari Mayur Kamdar in Bengaluru Editing by Arun Koyyur and Matthew Lewis)