Markets to sink ?

Friday’s news of a buckling US job market sent stock investors running for the exits, and next week promises to be no less stressful as investors grapple with the increasing possibility of an economic recession. The weekend will also give investors time to reflect on news US employers cut payrolls by 4,000 jobs last month.

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However, it is unlikely that there will be much clarity ahead of the anxiously-awaited Federal Reserve interest rate decision the following week, as investors debate whether and by how much the Fed will cut key interest rates. “The pendulum is going to swing between the euphoria — we’re going to get a rate cut, things are not that bad — to the world is going to end, we’re going into a recession,” said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

The Dow Jones industrial average fell 249.97 points, or 1.87 percent, to end at 13,113.38. The Standard & Poor’s 500 Index was down 25.00 points, or 1.69 percent, at 1,453.55. The Nasdaq Composite Index was down 48.62 points, or 1.86 percent, at 2,565.70.

The Dow was down 1.8 percent for the week, while the S&P 500 was down 1.4% and the Nasdaq was down 1.2%. For the S&P, it was the worst week since the beginning of August, while the Dow had its worst week since the week ending July 29. Fresh economic data will be studied warily for more signs the housing slump and subprime mess is spreading into other sectors of the economy.

“People will be nervous about all economic releases, because Friday’s jobs number showed that perhaps things are getting worse quicker than the market had previously believed,” said Eric Kuby, chief investment officer, North Star Investment Management Corp. in Chicago.

The sixth anniversary of the Sept. 11 attacks may also trigger some market unease, especially after al Qaeda leader Osama bin Laden said in a video seen by Reuters on Friday that the United States was vulnerable despite its military and economic power.

Trading volume, which has suffered from summer vacation-induced thinness in recent weeks, will likely jump as market participants return to their desks. Defensive stocks are expected to benefit as investors rejig their portfolios on the mounting evidence of a slowdown, analysts said.

“As people return they are going to be shifting to recession-resistant names such as health care, defence contractors and consumer staples,” said Thomas Nyheim, vice president at Christiana Bank & Trust in Greenville, Delaware. Among the economic data likely to garner market attention are initial jobless claims, consumer confidence, retail sales and industrial production.

As Federal Reserve Chairman Ben Bernanke said in a speech last week in Jackson Hole, Wyoming: “We will pay particularly close attention to the timeliest indicators.” Weekly jobless claims data, due on Thursday, could be more significant than usual as investors look for clues on whether the weak employment trend is here to stay.

And if Friday’s industrial production numbers come in lower and add to recession fears, Wall Street could see another negative turn, said Christiana’s Nyheim.