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)