U.S. stocks fell sharply on Friday in response to a grim U.S. jobs report that sent bond prices higher in Europe and pushed the price of crude down to $42 a barrel as prospects for the world’s economies darkened.

European shares extended losses in afternoon trade as investors reeled at U.S. government data showing a loss of 533,000 jobs in November, the weakest performance in 34 years.

Oils and bank stocks led the decline in Europe, while oil and defense stocks pushed the Dow down in the United States.

The dollar fell to a seven-week low against the yen but rose against the euro as investors once again sought shelter in the U.S. currency.

“When you see such a shocking employment number, you realize the devastating effect that can have on household demand,” said Henk Potts, equity strategist at Barclays Stockbrokers in London.

Shortly after opening, the Dow Jones industrial average was down 67.30 points, or 0.80 percent, at 8,308.94. The Standard & Poor’s 500 Index was down 6.59 points, or 0.78 percent, at 838.63. The Nasdaq Composite Index  was down 10.73 points, or 0.74 percent, at 1,434.83.

The pan-European FTSEurofirst 300 index was down 3 percent at 797.26 points.

Euro zone government bond futures extended gains to a fresh session high, pushing the 10-year cash yield below 3 percent after the worse-than-expected U.S. jobs report.

The 10-year Bund yield fell to the session low of 2.988 percent, down 9 basis points on the day.

However, U.S. government debt prices fell after the dismal labor report in a sign investors are reluctant to buy government debt with yields at the lowest in over 50 years.

The benchmark 10-year U.S. Treasury note was down 19/32 in price to yield 2.62 percent. The 2-year U.S. Treasury note fell 3/32 in price to yield 0.86 percent.

“We’re already at (yield) levels we’ve never seen before. It’s just difficult to continue buying Treasuries at these prices,” said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco.

November’s job losses were the steepest since December 1974, when 602,000 jobs were shed, Labor Department data showed, and were much worse than forecast by analysts polled by Reuters who had predicted a reduction of 340,000 jobs.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index up 0.61 percent at 87.142. Against the yen, the dollar fell 0.01 percent at 92.16.

The euro fell 0.66 percent at $1.2686.

U.S. light sweet crude oil was off 54 cents at $43.13 a barrel, after earlier touching $42 at one point.

Many dealers and analysts expect oil to test the psychologically important $40 a barrel level fairly soon as evidence mounts of a significant decline in oil demand in all the major developed economies.

Spot gold prices fell $13.85 to $751.80 an ounce.

Asian shares edged higher overnight, with the MSCI index of Asian shares outside Japan  rose 0.2 percent, but trimmed gains after the U.S. employment report. The Nikkei average slightly lower, down 0.1 percent.

By Herbert Lash
NEW YORK, Dec 5 (Reuters)

European stocks ended higher on Friday, as buoyant pharmaceutical shares eclipsed a drop in cyclical mining and industrial sectors hit by renewed economic fears, while energy shares tumbled along with oil.

The FTSEurofirst 300 index of top European shares closed 1.1 percent higher at 862.07 points.

Although it gained 13 percent during the week, the index dropped 7 percent in November, recording a ninth month of losses in what has been a torrid 2008 for equities worldwide.

Pharma stocks made strong gains on Friday, with GlaxoSmithKline up 5.1 percent and Sanofi-Aventis up 4.5 percent. Novartis , whose CEO said the company could increase its dividend and also resume share buybacks once it has reduced its debt, gained 4.4 percent.

The sector rallied after the publication of a long-anticipated EU report on generic competition. Although Competition Commissioner Neelie Kroes said preliminary results showed competition in the pharmaceuticals industry “does not work as well as it should”, traders said the absence of specific penalties in the report brought some relief to pharma stocks.

Energy firms such as Total and BP dropped 0.7-2.6 percent as oil prices sank below $52 a barrel on signs OPEC would defer cutting production when it meets this weekend in Cairo.

Industrials were also among the biggest losers, with Siemens down 3.8 percent and Alstom down 6 percent.

Despite the market’s recovery during the week, analysts remain wary about a potential “Christmas rally” this year.

“The volatility is not about to come down immediately. The economic newsflow is just too horrible. It’s too early to call for a straight market rally at this point,” said Arthur van Slooten, strategist at Societe Generale, in Paris.

“With deflation fears, risky assets have been pricing in the worst. But it doesn’t mean that all of a sudden, from now on you have a straight way up. We know that the newsflow will be terrible, but we need at least some sort of indication that the bottom is maybe in sight,” he said.

“Next year’s first quarter will really look awful in terms of macro data and with analyst further downgrading their estimates and companies finally becoming realistic in their own guidance. That in itself could provide us with a sound basis to build from there.”

Miners took a beating on Friday, adding to recent sharp losses. Anglo American shed 2.4 percent and Xstrata dropped 3 percent.

Prices for copper, a key industrial metal, slipped as tumbling industrial production data from Japan highlighted bleak prospects for demand in an oversupplied market, while prices for aluminium also fell, hit by the rising fears about the health of the embattled auto sector.

“There is little doubt that the outlook for metals demand is grim for at least the next few quarters and prices have fallen to levels that reflect market expectations for further stock increases,” Barclays Capital said in a note.

Automakers lost ground, with Volkswagen down 5 percent, BMW off 3.4 percent and Renault down 4.8 percent.

“Going into the weekend, one can’t help but worry that we are only a heartbeat away from the next scare story,” said Chris Hossain, senior sales manager at ODL Securities.

“The markets appear to have been buoyed by the feeling that the U.S. will be bailing out the auto industry, but one has to wonder how much more the global governments can continue to support troubled industries,” he added.

Around Europe, Germany’s DAX index eked out a gain of 0.1 percent, UK’s FTSE 100 index rose 1.5 percent and France’s CAC 40 added 0.4 percent.

By Blaise Robinson
PARIS, Nov 28 (Reuters)