CHILL ON WALL STREET; STOCKS FALL AS REPORT HIKES INTEREST JITTERS.

Byline: Eileen Glanton Associated Press 

Blue-chip stocks resumed their slide Friday as a report of strong U.S. employment solidified Wall Street's belief that the Federal Reserve will raise interest rates later this month.

The Dow Jones industrial average fell 79.79 points to close at 10,714.03, erasing more than half of its 119-point gain of Thursday. The blue-chip index ended a choppy week 58.88 points higher, a gain of 0.55 percent.

Broader stock indicators fell modestly Friday, capping a week of steep losses. The Standard & Poor's 500 fell 13.42 to 1,300.29, and the Nasdaq composite index fell 17.86 to 2,547.97.

The Nasdaq is now 11 percent below its record high of 2,864.48, reached July 16. Traditionally, Wall Street calls a market drop of 10 percent a correction.

Stocks tumbled after the Labor Department reported that employers added a larger-than-expected 310,000 jobs to their payrolls in July and that average hourly earnings, a key gauge of inflation pressures, rose 3.8 percent from a year ago.

Investors have grown increasingly worried that tight labor markets will force the Federal Reserve to raise interest rates as a pre-emptive strike against inflation. Higher interest rates cut into corporate profits by raising the cost of borrowing.

``If the Fed needed fuel to consider raising rates, they have it now with these new numbers,'' said Alan Ackerman, senior vice president at Fahnestock & Co. ``The strong jobs report tilted the optimists upside down.''

The Labor Department also reported the unemployment rate remained at 4.3 percent last month, near a three-decade low.

``That pace of job growth is unacceptable to the Fed,'' said Bruce Steinberg, chief economist at Merrill Lynch.

Bond prices fell sharply on the report, pushing the yield on Treasury's 30-year bond up to 6.15 percent from 6.04 percent late Thursday.

Interest rate concerns hurt financial services stocks, as J.P. Morgan fell 2.5625 to 122.9375 and Morgan Stanley Dean Witter dropped 4.5625 to 82.125. American Express, down 4.0625 to 123.0625, contributed most heavily to the Dow's losses.

``The stock market is trying really hard to fight reality right now - interest rates will probably be rising,'' said Brian G. Belski, chief investment strategist at George K. Baum & Co., in Kansas City, Mo. ``But some sectors can't escape the selling pressure.''

Certain technology issues did escape the sell-off, most notably semiconductor stocks like Micron Technology, up 4.5 at 65.875. Strong forecasts for personal computer sales have supported the stocks of companies that make computer parts, and an industry group said Thursday that worldwide semiconductor sales in June rose 13.6 percent from June 1998.

But Internet companies, which rallied sharply Thursday, struggled once again. Yahoo! lost 1.4375 to 126.9375 despite a ratings upgrade from Goldman Sachs. America Online gave up significant early gains to end 0.8125 higher, at 84.75.

EBay, the online auction site, plunged 9.625 to 83.25 as its system shut down.

While most market indexes ended the week fairly flat amid low volume, trading was volatile throughout the week.

``It's tough to call all the turns in this market,'' Ackerman said. ``It is like the Indianapolis 500. Everything keeps changing lap after lap.''

Declining issues outnumbered advancers by a 2-to-1 margin on the New York Stock Exchange. Composite volume totaled 850.17 million shares, compared with 1.04 billion in the previous session.

The NYSE composite index fell 6.35 to 611.04, and the American Stock Exchange composite index rose 1.83 to 777.92. The Russell 2000 index of smaller companies fell 1.71 to 428.04.

Japan's Nikkei stock average fell 1.57 percent. European indexes were mixed, as Germany's DAX index rose 0.6 percent, Britain's FT-SE 100 was up 0.3 percent, and France's CAC-40 closed 0.4 percent lower.