*

US labor growth misses expectations; unemployment rate

rises

*

Bets rise for a 50 basis point Fed rate cut in September

*

Consumer Discretionary is worst-hit index

*

Indexes down: Dow 1.51%, S&P 1.84%, Nasdaq 2.43%

(Updated at 4:12 p.m. ET/2012 GMT)

By Chuck Mikolajczak

NEW YORK, Aug 2 (Reuters) -

U.S. stocks sold off for a second straight session on

Friday, and the Nasdaq Composite confirmed it was in correction

territory after a soft jobs report stoked fears of an oncoming

recession.

The Labor Department said nonfarm

payrolls increased

by 114,000 jobs last month, well short of the 175,000

average forecast by economists polled by Reuters, and the at

least 200,000 that economists believe are needed to keep up with

population growth. The unemployment rate jumped up to 4.3%, near

a three-year high.

The data added to concerns the economy was slowing more

rapidly than anticipated and the Federal Reserve had erred by

keeping rates steady at its policy meeting that concluded on

Wednesday.

Expectations for a rate cut of 50 basis points (bps) at

the Fed's September meeting

jumped

to 69.5% from 22% in the prior session, according to CME's

FedWatch Tool

.

"Obviously the jobs number is the big headline, but we

seem to have officially entered at least a rational world where

bad economic news is read as bad rather than bad economic news

is read as good," said Lamar Villere, portfolio manager at

Villere & Co. in New Orleans.

"The Fed is going to cut and we're all sort of adjusted

to that, that is sort of established. Now it's more like hey,

did they wait too long? Do we have a recession on our hands?"

The weak jobs data also triggered what is known as the

"Sahm Rule," seen by many as a historically accurate recession

indicator.

The Dow Jones Industrial Average fell 610.71

points, or 1.51%, to 39,737.26, the S&P 500 lost 100.12

points, or 1.84%, to 5,346.56 and the Nasdaq Composite

lost 417.98 points, or 2.43%, to 16,776.16.

Adding downward pressure was drop in Amazon ( AMZN ),

down 8.79%, and Intel ( INTC ), which plunged 26.06% after their

quarterly results and disappointing forecasts.

The declines pushed the Nasdaq Composite down more than 10%

from its July closing high to confirm the index is in a

correction after concerns grew about expensive valuations in a

weakening economy.

The S&P 500 closed at its lowest level since June 4.

Both the benchmark S&P index and the blue-chip Dow suffered

their biggest two-day slides since March 2023.

The small cap Russell 2000 index slumped 3.52% to

close at a three-week low and saw its biggest two-day drop since

June 2022.

Chip stocks also continued their recent downdraft, and the

Philadelphia SE Semiconductor Index closed at a

three-month low after its biggest two-day slide since March

2020.

Among the few bright spots, Apple ( AAPL ) rose 0.69% after

posting better-than-expected third-quarter iPhone sales and

forecasting more gains, betting on AI to attract buyers.

Of the 11 major S&P 500 sectors, defensive names such as

consumer staples, utilities and real estate

were the only advancers, with the consumer

discretionary sector leading declines as Amazon ( AMZN )

weighed heavily, for its biggest two-day drop since June 2022.

The CBOE Volatility index, also known as Wall

Street's "fear gauge," breached its long-term average level of

20 points to touch 29.66 its highest mark since last March 2023,

before closing at 23.39.

Some market participants viewed the sell off as a chance to

pickup stocks at cheaper prices. UBS strategist Jonathan Golub

said in a note to clients on Friday that market returns are

greatest when the VIX is extended and represents a near-term

buying opportunity.

Declining issues outnumbered advancers by a 2.92-to-1

ratio on the NYSE, and by a 4.52-to-1 ratio on the Nasdaq.

The S&P 500 posted 62 new 52-week highs and 15 new lows,

while the Nasdaq Composite recorded 34 new highs and 297 new

lows.

Volume on U.S. exchanges was 14.75 billion shares,

compared with the 11.97 billion average for the full session

over the last 20 trading days.