The economy created 113,000 jobs last month, far less than the 145,000 expected by economists and down from 121,000 created in June. Unemployment rose to 4.8 percent from 4.6 percent, and wage growth was constant at 0.4 percent.

Market watchers had believed slower job growth will keep inflation from taking hold, and thus allow the Fed to stop raising rates, and stocks have been on the upswing over the past two weeks. However, by this afternoon, analysts said a Fed pause was already accounted for in stock prices, and the potential downside for stocks if the Fed does raise rates made Wall Street nervous.

Market strategists and analysts remained undaunted in proclaiming an end to rate hikes, but some noted that a pause also means the economy has indeed slowed down, which could affect corporate earnings in the coming months.

"I think the Fed is done for now," said Ken McCarthy, chief economist for vFinance Investments. "But I do think there's an element of concern that maybe what this employment report might be telling us is that the economy is weaker than we thought. Not just slowing down, but actually weak."

The Fed's Open Market committee meets Tuesday to weigh whether the nation's benchmark rate should be increased by a quarter percentage point to 5.5 percent.

The Dow Jones industrial average fell 2.24, or 0.02 percent, to 11,240.35 — a 104-point swing from its intraday high early in the session.

Broader stock indicators also lost ground. The Standard & Poor's 500 index lost 0.91, or 0.06 percent, to 1,279.36, while the tech-focused Nasdaq composite index dropped fell 7.29, or 0.35 percent, to 2,085.05 after Apple Computer Inc. said it would have to restate earnings due to stock option accounting issues.

Bonds surged on the jobs report, with the yield on the benchmark 10-year Treasury note falling to 4.90 percent from 4.96 percent late yesterday. The dollar fell against most major currencies, while gold prices also slipped.

The market's initial response to the jobs report — a sharp rise in stocks in early trading — indicated that a growing number of investors believe that the Fed might actually not raise rates Tuesday. That's a marked shift from a few weeks ago, when an August rate hike was almost a foregone conclusion.

Of course, if the central bank does implement another quarter-point rate increase, there is likely to be widespread disappointment and a big pullback on Wall Street, which most likely led to the afternoon downturn today.

"Guessing what the Fed's going to do is like a latter-day financial parlor game, and nobody is necessarily very good at it," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers. "Wage growth is still steady, you have energy prices that are still pretty high — the inflationary pressures are still there. You may get a pause next week, you may not, but the direction is still pretty set."

For the week, the debate over rates kept the markets in flux, and the major indexes finished mixed and little changed. The Dow rose 0.18 percent and the S&P 500 added just 0.06 percent, while the Nasdaq fell 0.43 percent.

Crude oil futures fell for a second straight session as Tropical Storm Chris, which traders had feared would damage oil rigs and refineries along the Gulf of Mexico, was downgraded to a tropical depression. A barrel of light crude settled at $74.73, down 73 cents, on the New York Mercantile Exchange.

Higher oil prices in the second quarter helped Occidental Petroleum post a surge in revenue, but second-quarter net profits declined year-over-year due to a one-time gain a year ago. Occidental fell $1.70 to $105.24.

Medco Health Solutions Inc., the pharmacy benefits manager, rose $1.55 to $60.65 after second-quarter profits jumped 26 percent, beating analysts' forecasts by 4 cents per share.

The tech sector saw some selling after Apple said it would have to restate earnings reports due to errors made in account for employee stock option grants, an increasing problem for corporate America. Apple, which said earnings reports dating back to 2002 were unreliable, lost $1.29, or 1.8 percent, to $68.30.

Gateway Inc. slid 19 cents, or 12 percent, to $1.40 on its latest earnings report, which saw the computer maker swing to a loss for the quarter due to shrinking profit margins and slow sales. Wall Street had expected a modest profit.

Advancing issues outnumbered decliners by nearly 9 to 7 on the New York Stock Exchange, where volume came to 1.73 billion shares, compared with 1.81 billion traded yesterday.

The Russell 2000 index of smaller companies was down 3.12, or 0.44 percent, at 701.26.

Overseas, Japan's Nikkei stock average rose 0.19 percent, but European markets jumped higher after interest rate increases from the Bank of England and the European Central Bank prompted a selloff. Britain's FTSE 100 was up 0.87 percent, France's CAC-40 gained 1.15 percent for the session, and Germany's DAX index surged 1.47 percent.