Stocks and bonds fell sharply on Friday as a strong jobs report led investors to anticipate higher U.S. interest rates.

KEEPING SCORE: The Standard & Poor's 500 lost 29.78 points, or 1.4 percent, to close at 2,071.26 on Friday. It was the worst drop for the index since Jan. 5. The Dow Jones industrial average lost 278.94 points, or 1.5 percent, to 17,856.78. The Nasdaq composite fell 55.44 points, or 1.1 percent, to 4,927.37.

MORE JOBS: U.S. employers extended a healthy streak of hiring in February by adding 295,000 jobs, the 12th straight monthly gain above 200,000. The Labor Department said Friday that the unemployment rate fell to 5.5 percent from 5.7 percent. Still, the strong job gains weren't enough to boost wages by much. The average hourly wage rose just 3 cents in February to $24.78 an hour.

THE QUOTE: The strong jobs report is fueling speculation that the Federal Reserve could raise interest rates earlier than the market had anticipated. Policymakers have held rates close to zero for more than six years.

"Certainly, the number does put pressure on the Fed to move," said Jim Russell, a Portfolio Manager at Bahl and Gaynor, a wealth manager. "Today's number really suggests that ... that lift-off date is as early as June."

THE BIGGEST LOSERS: Government bonds fell as investors factored in a higher probability of a summer rate hike. The yield on the benchmark 10-year Treasury note jumped to 2.24 percent from 2.12 percent late Thursday.

Stocks that pay rich dividends, such as utilities, telecommunication companies and real estate investment companies, slumped the most. These stocks have been popular while interest rates on bonds have remained low. If interest rates on bonds rise, they become less attractive by comparison. The Dow Jones utility average plunged 3.1 percent. It's down 7.7 percent this year.

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HOLDING UP: Financial companies fell the least in the S&P 500 index. Higher interest rates are generally good for financial companies such as banks because they can lend at higher rates. Banks also rose a day after the Federal Reserve announced that major U.S. lenders had all passed the Fed's annual "stress tests," which are designed to gauge whether lenders are strong enough to withstand severe disruptions to the financial system. Bank of America rose 28 cents, or 1.8 percent, to $16.28, one of the biggest gains in the S&P 500.

EUROPE'S DAY: In Europe, Germany's DAX rose 0.4 percent while the CAC-40 in France was flat. The FTSE 100 index of leading British shares fell 0.7 percent.

Stocks in Europe have been on a tear this year as investors have anticipated that another round of economic stimulus, scheduled to start next week, will boost economic growth in the region. The DAX is up 18 percent so far this year. The CAC is 16 percent higher.

DOLLAR SPIKES: The dollar jumped after the release of the job figures as traders priced in an earlier rate hike. The euro, already at 12-year lows, slid to $1.0846. The dollar also rose against the Japanese yen, climbing to 120.78 yen.

ENERGY: Benchmark U.S. crude fell $1.15 to close at $49.61 a barrel on the New York Mercantile Exchange. Brent crude, the international benchmark, was down 75 cents to $59.73 a barrel in London.

METALS: Precious and industrial metals futures fell sharply. Gold fell $31.90 to $1,164.30 an ounce, silver fell 35 cents to $15.81 an ounce and copper lost four cents to $2.61 a pound.