As expected, the Dow sank the Easter break in response to news of a 140,000 rise in US jobs in March on top of a revised 162,000 jump in February and a subsequent two-point drop in Treasury bond prices during limited trading on Friday.
Attention will turn to the UK markets this morning, though some analysts believed that fears that the London stocks will follow Wall Street's sharp falls were overdone.
The strong US employment figures dashed all hopes of another Federal Reserve interest rate easing and raised fears that the Fed's next move will be to tighten.
By 1pm the Dow was down 134.40 points to trade at 5,545.48 and the 30- year bond yield had pierced key support levels to 6.93 per cent.
"It's a bloodbath, but one that was very much expected after the employment data and the subsequent reaction in the bond market," Phil Orlando, chief investment officer at Value Line's asset management division, said.
The sell-off was across the board, with declining issues swamping advancing stocks by an almost 20 to 1 margin on the New York Stock Exchange. Broad market indexes were also sharply lower.
Analysts are predicting 7-7.25 per cent on the 30-year bond - a crucial level at which many investors are expected to reduce their portfolio weighting in shares and put cash into money-market instruments. Nevertheless, many leading market commentators were still reluctant to call yesterday's sell- off the beginning of a bear market. "I would not jump to that conclusion based on one day's trading," Dick McCabe, chief market analyst at Merrill Lynch in New York, said.
London was expected to feel some knock-on effect today. Stephen King, international economist at James Capel, pointed to February's US non-farm payrolls which had only a small impact in London.
"What may be happening to the US economy does not necessarily apply to Europe," he said. "This looks like a specific US problem, whereas most European economies are slowing down with further rate cuts to come."
He told Reuters news agency: "You will probably see the US bond market weakness coming through in Europe but I would very much doubt if we see any sort of permanent correction."Reuse content