NEW YORK, Aug 2 (Reuters) - Economic fears are roiling

Wall Street, as worries grow that the Federal Reserve may have

left interest rates elevated for too long, allowing them to hurt

U.S. growth.

Alarming economic data in recent days have deepened those

concerns. U.S. job growth slowed more than expected in July, a

Friday report showed, while the unemployment rate increased to

4.3%, heightening fears that a deteriorating labor market could

make the economy vulnerable to a recession.

The jobs report exacerbated a selloff in stocks that began

on Thursday, when data showing weakness in the labor market and

manufacturing sector pushed investors to dump everything from

chip stocks to industrials while piling into defensive plays.

Richly valued tech stocks tumbled further on Friday,

extending losses in the Nasdaq Composite to more than

10% from a record closing high reached in July. The benchmark

S&P 500 index has slid 5.7% from its July peak.

"This is what a growth scare looks like," said Wasif

Latif, president and chief investment officer at Sarmaya

Partners. "The market is now realizing that the economy is

indeed slowing."

For months, investors had been heartened by cooling

inflation and gradually slowing employment, believing they

bolstered the case for the Fed to begin cutting interest rates.

That optimism drove big gains in stocks: the S&P 500 remains up

12% this year, despite recent losses; the Nasdaq has gained

nearly 12%.

Now that a September rate cut has come into view following a

Fed meeting this week, investors are fretting that elevated

borrowing costs may already be hurting economic growth.

Corporate earnings results, which saw disappointments from

companies such as Amazon ( AMZN ), Alphabet and Intel ( INTC ), are adding to

their concerns.

"We're witnessing the fallout from the curse of high

expectations," said James St. Aubin, chief investment officer at

Ocean Park Asset Management. "So much had been invested around

the scenario of a soft landing, that anything that even suggests

something different is difficult."

Next week brings earnings from industrial bellwether

Caterpillar ( CAT ) and media and entertainment giant Walt

Disney ( DIS ), which will give more insight into the health of

the consumer and manufacturing, as well as reports from

healthcare heavyweights such as weight-loss drugmaker Eli Lilly ( LLY )

.

Bets in the futures markets on Friday suggested growing

unease about the economy. Fed fund futures reflected traders

pricing an over-70% chance of a 50-basis point cut at the

central bank's September meeting, compared to 22% the day

before, according to CME FedWatch. Futures priced a total of 116

basis points in rate cuts in 2024, compared to just over 60

basis points priced in on Wednesday.

Broader markets also showed signs of unease. The Cboe

Volatility index - known as Wall Street's fear gauge -

hit its highest since March 2023 on Friday as demand for options

protection against a stock market selloff rose.

Meanwhile, investors have rushed into safe haven bonds and

other defensive areas of the market. U.S. 10-year yields - which

move inversely to bond prices - on Friday dropped as low as

3.79%, the lowest since December.

Sectors that are often popular during times of economic

uncertainty are also drawing investors.

Options data for the Health Care Select Sector SPDR Fund

showed the average daily balance between put and call

contracts over the last month at its most bullish in about three

years, according to a Reuters analysis of Trade Alert data.

Trading in the options on Utilities Select Sector SPDR Fund

also shows a pullback in defensive positioning,

highlighting traders' expectations for strength for the sector.

The healthcare sector is up 4% in the past month,

while utilities are up over 9%. By contrast, the

Philadelphia SE Semiconductor index is down nearly 17% in

that period amid sharp losses in investor favorites such as

Nvidia ( NVDA ) and Broadcom ( AVGO ).

To be sure, some investors said the data could just be a

reason to lock in profits after the market's overall strong run

in 2024.

"This is a good excuse for investors to sell after a huge

year to date rally," said Michael Purves, CEO of Tallbacken

Capital Advisors. "Investors should be prepared for some major

volatility, particularly in the big tech stocks. But it will

probably be short-lived."