Stocks fell sharply Friday after a larger-than-expected gain in jobs and wages reignited fears of an interest rate increase.

The Dow Jones industrial average slid 18.77 to 3,747.02, down 17.48 for the week.A government report on July non-farm payrolls and unemployment sent bond prices sliding as well. The 30-year bond was down 1 7/16 points near the close. Its yield, which rises when prices fall, stood at 7.54 percent, up from 7.40 percent on Thursday.

Both markets tumbled after a Labor Department report said the economy created 259,000 new jobs in July - about 60,000 more than analysts had forecast - after producing a huge gain of 356,000 jobs in June.

Equally disturbing was a closely watched wage gauge in the report, the hourly earnings of non-farm, non-supervisory workers, which jumped 0.4 percent to $11.12 in July.

The markets have been concerned that higher labor costs could prove inflationary.

Analysts said the report increased the likelihood that the Federal Reserve would raise interest rates as much as 0.50 percent at its next Open Market Committee meeting Aug. 16, in an attempt to slow economic growth and head off any potential increase in inflation.

"Certainly it's strong enough to make the Fed seriously consider it, coupled with other things," said Bill Newman, chief investment strategist at Kidder, Peabody.

Larry Wachtel, a first vice president at Prudential Securities Inc., said some market participants are hoping for 0.50 percent tightening, rather than the 0.25 percent that analysts had been talking about. He noted that when the Fed tightened 0.50 percent May 17, the Dow industrials rallied nearly 50 points.

"They may want to see the whole enchilada and get it out of our face," Wachtel said. "On the other hand, the Fed has to be responsible, and there are some indications that the economy is slowing down."

The Labor Department said the report said the nation's unemployment rate edged up to 6.1 percent in July from 6 percent. The gain was about in line with economists' expectations and led analysts to suspect that Friday's market decline could be a one-day affair.

"I think they're seeing a lot of cross-currents" in the economy, Newman said, noting that recent economic reports showed weakness in retail, auto and housing sales.

Longer term, Newman said he expects that "the combination of tax increases, Fed policy and just the overall debt levels are going to slow this economy down."

On Friday, however, market declines were widespread. Declining issues outnumbered advancers by nearly 12 to 7 on the New York Stock Exchange, and broad market indexes fell.

The NYSE's composite index fell 0.77 to 252.50. The Nasdaq index declined 1.51 to 718.67. At the American Stock Exchange, the market value index lost 1.01 to 440.34. The Standard & Poor's 500 list fell 1.31 to 457.09.

Volume on the Big Board was a moderate 230.27 million shares, down from 289.15 million Thursday.

Investors sold the issues of economically sensitive companies, such as smokestack industrial stocks, and interest-sensitive companies, such as banks and mortgage-related companies, on the fear that higher interest rates would choke off investment.

Utility stocks, which had rallied over the past several weeks, were particularly hard hit Friday amid fear of rising interest rates would prove expensive to utilities, which typically borrow heavily in the credit markets. The Dow Jones utility average lost 1.91 points, or 1 percent, to close at 189.43.