Stocks fell early Friday despite a government report that the unemployment rate dropped in December to the lowest level in nearly three years.
Concerns about the European debt crisis continued to weigh on the market. Italy's borrowing costs spiked to dangerously high levels and the euro fell to a 17-month low against the dollar. U.S. bank stocks fell on concerns that the debt crisis will spread through the financial industry.
The Dow Jones industrial average fell 79 points, or 0.6 percent, to 12,336 in the first half-hour of trading. Bank of America Corp. fell 2.9 percent, the most of the 30 Dow stocks.
Alcoa Inc. was the Dow's second-biggest lower, slipping 2.2 percent after a Citi analyst forecast that the aluminum maker lost money in the fourth quarter of 2011 for the first time since the recession. Alcoa reports earnings Monday.
Europe's debt woes and China's slowing economy are still overshadowing signs of strength in the U.S. economy, said Doug Cote, chief market strategist at ING Investment Management.
"The global risks continue to exert their weight," Cote said. Ultimately, improving U.S. stronger consumer demand, manufacturing activity and corporate profits will drive U.S. stocks higher, Cote said.
The Labor Department said the unemployment rate fell last month to 8.5 percent, while U.S. employers added a net 200,000 jobs.
It was the latest in a series of positive signs about the labor market. The economy has generated 100,000 or more jobs each month for the past six, the longest such streak since April 2006. The number of people applying for unemployment benefits last week fell, pushing the four-week average of new claims down to its lowest level since June 2008.
In other trading, the Standard & Poor's 500 index fell 7, or 0.6 percent, to 1,273. The Nasdaq composite index fell 11, or 0.4 percent, to 2,659.
The euro lost another 0.6 percent to $1.2724, its weakest level since July 2010. The yield on the 10-year Treasury note fell to 1.96 percent from 2 percent late Thursday as investors put money into low-risk investments.
Stocks held steady in Europe despite the latest worrying signs about the debt crisis there. Italy's borrowing costs are soaring; it is now paying 7.09 percent to borrow for 10 years. That reflects investors' fears that the nation might default. Ireland and Portugal were forced to take bailouts when their ten-year borrowing rates rose above 7 percent.
Earlier, Asian markets ended mostly lower as they reacted to the previous day's European market jitters.
In corporate news, Family Dollar Stores Inc. fell 4.6 percent, the most in the S&P 500, after reporting fiscal first quarter revenue that was less than Wall Street had expected.
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