US stocks tumbled after the Labour Department said hiring remains weak and Hungary became the latest European country to report its economy is in crisis.
Interest rates dropped as investors moved money into the safety of US Treasury bonds and notes.
The Dow Jones industrial average dropped 323 points, its third-worst slide of the year. The index closed below 10,000 for the second time in two weeks. All the major indexes were down more than 3 per cent with concerns about Hungary pounding the euro to a four-year low.
The drop pushed major stock indexes back into "correction" mode, meaning a decline of at least 10 per cent from recent highs.
Retailers were among the hardest hit stocks after investors bet that a weak job market would discourage consumers from spending.
Financial stocks also fell sharply on concerns that borrowers would continue having problems paying their bills.
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Banks were further hurt by worries about their vulnerability to Europe's increasing troubles.
The government's May jobs report was an unpleasant surprise for investors who had grown a little more upbeat about the domestic economy the past few days. The Labour Department said private employers hired just 41,000 jobs in May, down dramatically from 218,000 in April and the lowest number since January.
The news made it clear that the economic recovery isn't yet picking up the momentum that investors have been looking for.
The US government said 431,000 jobs overall were created last month, but 411,000 of them came from the government's hiring of temporary census workers. The overall number also fell short of expectations. Economists polled by Thomson Reuters had forecast employers would add 513,000 jobs.
"People are looking for one turning point," Daniel Penrod, senior industry analyst for the California Credit Union League, said of the monthly jobs report.
"That's not realistic. This growth will be much slower and more gradual than in the past."
US stocks hold gains after bailoutStocks slide on weak jobs report
