Stocks suffered their worst day of the year, with the Dow tumbling into negative territory for 2012, after a disappointing jobs report in addition to dismal data from China and Europe fueled fears over the health of the global economy.
Whether the stock selloff continues through the summer "really depends on the government," said Doug Roberts, managing partner at Channel Capital Research. "If [the Fed] starts making news about QE3, than you can start to see this [selloff] is going to be relatively short-lived."
The Dow Jones Industrial Average plunged 274.88 points, or 2.22 percent, to end at 12,118.57, led by H-P and AmEx .
The S&P 500 tumbled 32.29 points, or 2.46 percent, to finish at 1,278.04. The Nasdaq plummeted 79.86 points, or 2.82 percent, to close at 2,747.48. Both the S&P and Nasdaq entered correction territory from their 2012 highs.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, surged more than 10 percent to close above 26.
For the week, the Dow dropped 2.70 percent, the S&P 500 declined 3.02 percent, and the Nasdaq erased 3.17 percent.
All 10 S&P sectors finished negative for the week, led by energy.
The U.S. added just 69,000 new jobs in May while the unemployment rate grew to 8.2 percent, fueling speculation that the Fed might be prompted to intervene with another round of quantitative easing. Economists polled by Reuters had expected nonfarm payrolls to increase 150,000 and the jobless rate to hold steady at 8.1 percent.
"It's painfully obvious the economic recovery in the U.S. isn't just slowing down, it's pulling up the emergency brake," said Todd Schoenberger, managing principal The BlackBay Group.
Also on the economic front, construction spending rose a less-than-expected 0.3 percent and the Institute for Supply Management's manufacturing index also came in light at 53.5—still in expansion territory but reflective of a slowdown.
"We think it is increasingly likely the Fed will announce another round of QE at the Aug. 1 or Sept. 13 meeting," Michelle Meyer, senior economist at Bank of America Merrill Lynch, told clients in a note. "The Fed will not sit idle as the economy slows." (Read More: Why More Fed Easing Might Not Help Much Now )
Bond yields found new historic depths , with the 10-year Treasury note yield dropping below 1.5 percent and the 30-year bond touching its all-time low, while energy prices hit three-year lows as well and metals including gold surged.
Adding to woes, China's slowdown worsened in May as its factories saw a further deterioration in demand at home and abroad. The darkening outlook was underlined by data showing the fourth monthly decline this year in exports from South Korea, as shipments to the United States, Europe and China all fell.
Oil prices fell to their lowest since October 2011 , while gold surged more than 4 percent to trade above $1,620 an ounce, logging its biggest one-day gain in more than two years as investors rushed to the yellow metal as a safe-haven.
Gold mining stocks were sharply higher, with Barrick Gold leading the way and Newmont Mining topping the S&P 500 performers.
European shares finished sharply lower amid lingering fears over the debt-ridden economies of Greece and Spain.
This comes after Spain unveiled Thursday that almost 100 billion euros ($123.25 billion) had left the country in the first three months of the year and the head of the European Central Bank (ECB) lambasted its handling of Bankia, the nation's troubled lender.
Meanwhile, Facebook tumbled to finish in negative territory, plummeting nearly 27 percent from its market debut of $38 a share. The social networking giant posted the biggest two-week loss of any IPO deal worth over $1 billion since 1995.
Groupon slumped after the IPO lock-up on the stock sales by insiders of the company ended . Insiders are typically prevented from selling for six months after an IPO.
Beacon Federal Bancorp was also a rare stock trading in positive territory, after the company said it will be acquired by Berkshire Hills Bancorp for $132 million.
And Hughes Telematics soared on news that Verizon would buy the company for $612 million in cash, or $12 a share to beef up its enterprise business.
—By CNBC’s JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
On Tap Next Week:
MONDAY: Factory orders; Earnings from Dollar General TUESDAY: ISM non-mfg index; earnings from HovnanianWEDNESDAY: Weekly mortgage apps, ECB announcement, productivity and costs, oil inventories, Fed's Beige Book, Fed's Lockhart speaks, Fed's Lockhart speaks, Fed Basel III voteTHURSDAY: Bank of England announcement, jobless claims, Bernanke speaks, quarterly services survey, Fed's Lockhart speaks, Fed's Kocherlakota speaks, consumer credit; Earnings from Lululemon Athletica, JM SmuckerFRIDAY: International trade, wholesale trade, Fed's Kocherlakota speaks, Chesapeake annual meeting
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