(RTTNews) - Investors are selling stocks in morning trading on Friday, as investors react to a dismal report from the Labor Department showing that the U.S. unemployment rate jumped to a nearly five year high in August. A downgrade of a major financial firm is also contributing to the selling pressure.

Employment continued to decrease in the month of August, according to a report released by the Department of Labor on Friday, with the continued job losses helping to lift the unemployment rate to its highest level in almost five years.

The report showed that non-farm payroll employment fell by 84,000 jobs in August following a revised decrease of 60,000 jobs in July. Economists had expected a decrease of about 75,000 jobs compared to the decrease of 51,000 jobs originally reported for the previous month.

With employment falling for the eighth consecutive month, the unemployment rate unexpectedly jumped to 6.1 percent in August from 5.7 percent in July. The increase came as a surprise to economists, who had expected the unemployment rate to remain unchanged.

Weakness in the financial sector is also contributing to the morning sell off after a Goldman Sachs analyst downgraded Merrill Lynch (MER) to a Sell rating with the expectation that the company will see further write-downs. Meanwhile, disappointing news from Nokia (NOK) is keeping the technology sector under pressure.

In other news, New York-based insurance services provider Assurant Inc. (AIZ) revealed a definitive agreement to acquire the Warranty Management Group business of GE Consumer & Industrial, a unit of General Electric (GE), for $140 million.

As per the terms of the agreement, Assurant will be entirely responsible for operating the extended warranty business that the company earlier co-managed and shared with GE following an alliance formed in 2003 to offer extended warranties directly to GE appliance purchasers.

In recent trading, the major averages have moved more firmly into negative territory. The Dow is currently down 89.48 at 11,098.75, the Nasdaq is down 19.26 at 2,239.78 and the S&P 500 is down 11.96 at 1,224.87.

Sector News

Wireless stocks are turning in some of the worst performances, hurt by a 10.5 percent decline by Nokia. The Amex Wireless Index is currently down 3 percent after seeing significant drops throughout the week. Earlier in the day, the index set a five-month intraday low. With the recent downtrend, the index is heading towards the low end of a trading range it has been stuck in for most of 2008.

Nokia is contributing to the weakness in the wireless sector after the company updated its mobile device market share outlook for the third quarter 2008. The company said that it now expects its mobile device market share in the third quarter 2008 to be lower than the second quarter 2008. Previously, Nokia anticipated its third quarter mobile device market share to be about at the same level sequentially.

Housing stocks are also posting substantial losses, with the Philadelphia Housing Index falling 3.2 percent. The index is pulling back further away from the three-month closing high set on Wednesday.

Within the sector, Toll Brothers (TOL) is down 5.9 percent, reversing the gain posted in the previous session. On Thursday, the luxury homebuilder reported its third quarter results, showing a 34 percent decline in revenues.

Utility stocks are sharply lower as well. The Philadelphia Utility Index is down 2.3 percent, extending a substantial downtrend seen throughout the week. With the decline, the index has fallen to its lowest intraday level in well over a year.

Other stocks that are sharply lower include health insurance, bank and retail stocks. The Morgan Stanley Healthcare Payor Index is down 2.2 percent, the S&P Bank Index is down 0.9 percent and the S&P Retail Index is down 1.5 percent.

On the other hand, tobacco stocks are seeing considerable strength, boosted by a 25.1 percent gain by UST Inc. (UST). According to the New York Times, Altria Group Inc. (MO) is in advanced talks to acquire UST, although the exact terms of the deal are unknown. The Amex Tobacco Index is up 3.6 percent.

Meanwhile, SanDisk (SNDK) is contributing to strength in the disk drive sector. SanDisk is up 24.4 percent on news that Samsung Electronics (SSNLF) is planning to buy the U.S-based memory chip maker. The Amex Disk Drive Index is climbing 2 percent.

Stocks Driven By Analysts Comments

Among individual stocks, Astec Industries (ASTE) is seeing significant selling pressure after being downgraded by an analyst at Piper Jaffray. The analyst downgraded the stock to a Neutral rating from a Buy rating

Shares of the construction equipment provider are currently down 4.7 percent after showing weakness for the past two sessions. Earlier in the day, the stock set a monthly intraday low.

Abercrombie & Fitch (ANF) is also showing considerable weakness after being downgraded to a Sell rating by a Citi analyst. The analyst stated that she expects the company’s profit to fall short of expectations in the second half of the year. The stock is down 4.3 percent, adding to declines seen in the previous two sessions.

On the other hand, GrafTech International (GTI) is seeing notable strength. A Jefferies analyst upgraded the stock to a Buy rating from a Hold rating while also lifting his price target to $30 from $22. The analyst said that he sees signs that the company will be hiking its graphite electrode prices. The stock is climbing 6.4 percent, bouncing off of the five-month closing low set on Thursday.

Other Markets

Stock markets across the Asia-Pacific region closed sharply lower on Friday after the U.S. market tumbled overnight, although they ended the day off their lows. Japan’s Nikkei 225 index opened lower and declined further in early trading. Thereafter, the index moved mostly sideways to close down more than 3 percent.

On the economic front, the Ministry of Finance said that Japan’s capital investment spending was down an annual 6.5 percent in the second quarter of 2008. This marked the fifth consecutive quarter of declines. Capex was down an annual 4.9 percent in the first quarter of the year.

The major European averages are also seeing significant weakness in Friday’s session. The French CAC 40 Index and the German DAX Index are receding 1.8 percent and 2.1 percent, respectively, while the U.K.’s FTSE 100 Index is declining 1.3 percent.

Meanwhile, treasuries are showing strength, as investors flee to the safety of government backed bonds following the dismal employment report. Subsequently, the yield on the ten-year note is currently down 4.8 basis points at 3.595 percent.

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Posted in Categories: Economy, Eurozone, Japan, Releases, USA.

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