By Anora Mahmudova and Sara Sjolin, MarketWatch

Economy added 295,000 jobs in February; unemployment rate at 5.5%

NEW YORK (MarketWatch) -- U.S. stocks sold off on Friday after a stronger-than-expected jobs report sent the dollar and 10-year Treasury yields rising, indicating that the market believes a rate hike will occur sooner rather than later.

A strong jobs report painted a positive picture for the strength of the U.S. economic recovery, with 295,000 jobs added last month and the unemployment rate falling to 5.5%. Only wage growth was less than stellar, rising a midland 2%, two-thirds as fast during a strong economic expansion.

Separately, the trade deficit narrowed by less than expected. The main indexes were set to end the week with losses for the second week in a row.

The S&P 500 (SPX) saw losses across the board, with all 10 main sectors trading in the red.

The Dow Jones Industrial Average (DJI) plunging about 250 points, or about 1.5%, with all of the 30 blue-chip stocks trading lower. AT&T Inc. (T) was one of the top decliners after news that Apple Inc. (AAPL) will replace it on the index (http://www.marketwatch.com/story/apple-to-join-dow-industrials-replaces-att-2015-03-06).

The Nasdaq Composite (RIXF) was lower, but losses were capped thanks to a rally in Apple Inc.

"The stock market is caught between positive implications of a strong jobs report, which means economy is growing, consumers are in better shape and earnings are likely to grow," said Kate Warne, investment strategist from Edward Jones.

"But it also means that the Fed is probably going to start raising rates sooner," Warne noted.

"Bond markets and the dollar are better indicators for rates expectations in that sense and they clearly are signalling that short-terms rates will rise sooner," she added.

Jobs data:The U.S. created a robust 295,000 jobs in February (http://www.marketwatch.com/story/us-creates-295000-jobs-in-february-unemployment-55-2015-03-06)and the unemployment rate fell to 5.5% from 5.7%, but more people dropped out of the labor force, the government said Friday.

Coupled with falling inflation, the lackluster wage growth may give the Federal Reserve room to be patient with the timing and pace of interest rate hikes.

The ICE dollar index (DXY) shot up 1% (http://www.marketwatch.com/storyno-meta-for-guid) to 97.29 and greenback surged to a 12-year high against the euro (USDEUR). The 10-year Treasury yield spiked 11 basis points to 2.24%.

"The Fed is unlikely to raise rates this year at all, because the stronger dollar has done the tightening job for them. The Fed knows full well how a rate hike and even stronger dollar will disrupt markets, so they will pause before hiking," said Ed Shill, chief investment officer at QCI Asset Management.

Bank stress tests: Late Thursday, the Fed said the U.S.'s largest banks are strong enough to weather an economic downturn (http://www.marketwatch.com/story/all-31-banks-had-enough-capital-after-feds-stress-test-2015-03-05-161034514), with all 31 major institutions assessed in the stress test getting a passing grade.

Stocks to Watch: Bank of America Corp. (BAC) jumped, making it one of the top gainers, along with many other banking shares. Staples Inc.(SPLS) shares fell after the office-supplies retailer said it swung to a loss (http://www.marketwatch.com/story/staples-swings-to-fourth-quarter-loss-on-impairment-charges-2015-03-06) in the fourth quarter.

Footwear retailer Foot Locker Inc.(FL) rose sharply after its fourth-quarter earnings beat expectations.

Newmont Mining Corp. (NEM) slumped on the back of a steep drop in gold prices, making it the top decliner on the S&P 500.

For more on today's notable movers, read our Movers & Shakers column (http://www.marketwatch.com/story/staples-foot-locker-gap-are-stocks-to-watch-2015-03-06).

Other markets: Surging dollar hurt commodities. Oil futures (http://www.marketwatch.com/story/oil-edges-higher-as-ecb-measures-boost-market-sentiment-2015-03-06-11032914)(CLJ5) fell 1% to $50.20 a barrel, while (http://www.marketwatch.com/storyno-meta-for-guid)gold futures (http://www.marketwatch.com/story/gold-holds-near-2-month-low-ahead-of-jobs-data-2015-03-06)(GCJ5) dropped 1.5% to $1,178.1 an ounce.

European stock markets continued their march higher, after the European Central Bank on Thursday raised its growth forecasts for the eurozone and said it would begin government-bond buying on Monday.

In Asia, Japanese stocks climbed to a fresh 15-year high (http://www.marketwatch.com/storyno-meta-for-guid), while stocks in Hong Kong and Shanghai closed in the red.

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