(Updates to midday, changes byline)
* Stagflation fears rattle sentiment
* Soaring oil, unemployment rate drive broad sell-off
* Big manufacturers, financials, airlines, retailers hit
By Ellis Mnyandu
NEW YORK, June 6 (Reuters) - U.S. stocks tumbled on Friday
as investors feared that 1970s-style stagflation will hurt the
U.S. economy after government data showed the unemployment
rate made its sharpest jump in 22 years in May, while surging
oil prices fueled inflation concerns.
U.S. front-month crude <CLc1> soared nearly 5 percent to
within sight of a record it hit above $135 a barrel late last
month.
The market's broad sell-off was driven by concern that the
inflationary surge in energy costs will squeeze consumers'
budgets and curtail the U.S. Federal Reserve's ability to keep
cutting interest rates despite a weak economy.
Shares of big manufacturers led declines, with General
Electric Co <GE.N>, an economic bellwether, falling more than
2 percent, while plane maker Boeing Co <BA.N> lost 4 percent.
Shares of financial services companies were another big
casualty, with insurer American International Group Inc
<AIG.N> down 6 percent.
"This is the worst economic environment," said Dave
Rovelli, managing director of U.S. equity trading at Canaccord
Adams in New York. "I don't see how this is not stagflation."
Stagflation, last seen in the late 1970s, occurs when
prices rise and growth stagnates.
The Dow Jones industrial average <> slid 261.03
points, or 2.04 percent, to 12,343.42. The Standard & Poor's
500 Index <.SPX> fell 23.04 points, or 1.64 percent, to
1,381.01. The Nasdaq Composite Index <> lost 38.63
points, or 1.51 percent, to 2,511.31.
A slide in the dollar spurred the rise in the oil price.
Underpinning the surge was also a note to clients in which
Morgan Stanley said oil prices could reach a record $150 a
barrel by July 4.
On the economic front, the unemployment rate rose in May
to 5.5 percent, its highest since October 2004, the Labor
Department said. For details, see []. The jump
from 5 percent in April was the biggest rise in the jobless
rate in 22 years. The department said the economy shed nonfarm
payroll jobs for a fifth straight month.
Shares of GE, a diversified manufacturer, were the top
drag on the S&P 500, down 2.5 percent at $30.30 on the New
York Stock Exchange. Earlier, GE's stock sank to $30.15, its
lowest level since May 2004.
Boeing shares slid 4 percent to $74.21 on the NYSE.
Among financial stocks, AIG shares dropped 6 percent to
$34.23, while shares of JPMorgan Chase & Co <JPM.N>, the No. 3
U.S. bank, shed 3.6 percent to $40.59. The S&P financial index
<.GSPF> declined 3.2 percent.
Shares of consumer-oriented companies also took a beating,
with the S&P retail index <.RLX> down 2.7 percent. Shares of
Wal-Mart Stores Inc <WMT.N> slipped 1.6 percent to $58.86,
giving up some of the gains notched on Thursday on a
stronger-than-expected May sales report.
The surge in crude prices also hurt airline stocks, with
JetBlue Airways <JBLU.O> down more than 5 percent at $4.08 on
the Nasdaq. The airline index <.XAL> was down nearly 5
percent.
(Reporting by Ellis Mnyandu; Editing by Jan Paschal)
