NEW YORK (AP) – A surprising surge in new jobs and wages sent stock and Treasury prices falling Friday as investors saw their hopes for an interest rate cut dwindle.

The markets shuddered at the Labor Department’s report that U.S. employers increased their payrolls by 167,000 in December and boosted workers’ hourly wages by 0.5 percent. The unemployment rate, meanwhile, held steady at a historically low 4.5 percent.

The report suggests the economy won’t be slowing as much as investors anticipated – news that should prove positive for stocks in the long-term, but which raised concerns Friday that the Federal Reserve might use it as a reason to raise interest rates. A rise in rates could crimp consumer spending, and further weaken the housing market by making mortgages pricier.

At this point, though, economists see policy makers keeping rates steady.

“Until we get an uptick in the unemployment rate, in this environment the Fed will probably stay in a holding pattern,” said Commonfund chief economist Michael Strauss, pointing to the slowing, but still expanding, economy. “Moderate economic growth is historically good for the equity market, not a bad thing,” he said.

Concerns about the jobs report added to disappointment over a warning by Motorola Inc. that the cell-phone maker is lowering its fourth-quarter sales estimates, as well as a series of analyst downgrades of technology companies.

In midafternoon trading, the Dow Jones industrial average fell 78.59, or 0.63 percent, to 12,402.10, after falling by more than 115 points earlier in the day.

Broader stock indexes also fell. The Standard & Poor’s 500 index dipped 8.26, or 0.58 percent, to 1,410.08, and the technology-heavy Nasdaq composite index dropped 19.81, or 0.81 percent, at 2,433.62.

Prices plummeted in the Treasury market, driving up the yield on the benchmark 10-year Treasury note to 4.66 from 4.61 percent late Thursday. The 10-year yield had touched 4.70 percent earlier Friday immediately following the jobs report.

The Federal Reserve, which has kept rates stable since August after raising rates for two years, is expected to leave rates on hold again when it meets Jan. 30-31. Still, investors were nervous enough Friday to sell stocks and bonds, following a months-long pattern of cashing in recent gains at the first possible sign of a rate hike – which the Fed would enact if inflation accelerated.

“There are worries about inflation on signs of increasing wages, but you have to take that with a grain of salt,” said Jeff Kleintop, chief investment strategist for PNC Wealth Management. He noted that other wage measures, such as the employment cost index, have remained fairly tame; additionally, energy prices have been rapidly declining.

Crude oil prices rebounded 36 cents to $55.94 a barrel in midafternoon trading on the New York Mercantile Exchange, after a drop this week of more than 9 percent on expectations of sluggish heating fuel demand due to mild weather in the Northeast and Midwest United States.

The dollar rose against other major currencies, while gold prices slipped.

Friday’s stock pullback was likely a brief dip in the market’s climb, which so far has been extremely steady, Strauss said.

“Up-channels don’t last forever,” he said. “Eventually you get a correction, which brings new buyers back into the marketplace.”

Motorola fell $1.62, or 7.9 percent, to $18.93, after the world’s second largest cell-phone maker slashed its earnings estimates.

Other technology stocks also fell on a spate of analyst downgrades. Intel Corp. fell 18 cents to $21.01; Silicon Laboratories dropped $1.98, or 5.6 percent, to $33.36; Broadcom Corp. fell $1.47, or 4.38 percent, to $32.10; and Nokia Corp. fell $1.02, or 4.9 percent, to $19.90.

Qualcomm Inc. fell 73 cents to $38.42, a day after South Korea’s antitrust regulator said it is probing alleged unfair market practices by the U.S. wireless technology company.

Strong December sales figures from the nation’s two biggest consumer electronics retailers, Best Buy Co. and Circuit City Stores Inc., failed to give Wall Street a big enough boost to offset the jobs report and Motorola’s news.

Best Buy rose 40 cents to $50.24, after it said sales at stores open more than 14 months rose 7 percent.

Circuit City slipped 72 cents to $19.28, pulling back on worries about competition from Best Buy. Its stock had risen more than 3 percent in pre-market trading on its report that December same-store sales, those from stores open at least a year, rose 4.2 percent.

Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 1.04 billion shares.

The Russell 2000 index of smaller companies fell 12.40, or 1.57 percent, to 777.55.

Overseas, Japan’s Nikkei stock average closed down 1.51 percent. Britain’s FTSE 100 fell 1.06 percent, Germany’s DAX index fell 1.22 percent, and France’s CAC-40 fell 1.03 percent.

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