By Johann M Cherian and Sukriti Gupta

(Reuters) -Wall Street’s main indexes fell on Friday, with the S&P 500 touching an over two-month low after an upbeat jobs report stoked fresh inflation worries and reinforced bets that the Federal Reserve will be cautious in cutting interest rates this year.

Along with the day’s declines of about 2.4%, the domestically focused small-cap Russell 2000 index fell about 10% from its intraday high hit in late November, to what is known as correction territory.

At 11:50 a.m. ET, the Dow Jones Industrial Average fell 634.08 points, or 1.49%, to 42,001.12, the S&P 500 lost 93.25 points, or 1.58%, to 5,825.00 and the Nasdaq Composite lost 367.64 points, or 1.89%, to 19,111.24.

A Labor Department report showed job growth unexpectedly accelerated in December while the unemployment rate fell to 4.1% as the labor market ended the year on a solid footing.

“The market was planning for lower interest rates which now seem to be off into the future, if at all this year,” said Robert Pavlik, senior portfolio manager, Dakota Wealth.

“Now, with at least a stronger appearing economy keeping the Fed on hold for longer it just makes it a much more difficult environment for stocks, at least short term.”

Traders now see the central bank lowering borrowing costs for the first time in June and then staying steady for the rest of the year, according to the CME Group’s FedWatch Tool.

Brokerages also revised their Fed rate cut forecasts, with BofA Global Research forecasting a potential rate hike.

However, Chicago Fed president Austan Goolsbee said there is no evidence the economy is overheating again, adding he still expects it will be appropriate to lower interest rates further.

Pressuring stocks, the yield on the 30-year Treasury note touched 5% – its highest since November 2023, while Wall Street’s fear gauge hit a more than two-week high.

Ten of the 11 S&P 500 sectors declined, led by technology stocks’ 2.7% drop, while rate-sensitive financials and real-estate also lost over 2% each.

Adding to the dour mood, a University of Michigan survey showed consumer sentiment dropped to 73.2 in January from the previous month.

Wall Street’s main indexes are poised to close their second consecutive week in the red, with the benchmark S&P 500 down 4.5% from its record high hit a month ago.

Fresh inflation worries have taken the spotlight, compelling the Fed to issue a cautious forecast on monetary easing last month, as it anticipates policy changes on trade and immigration under President-elect Donald Trump, who is expected to take office in 10 days time.

Chip stocks such as Nvidia dropped 3.6%, weighed down by a report that the U.S. could announce new export regulations as early as Friday.

Constellation Energy soared 22% after agreeing to buy privately held natural gas and geothermal company Calpine Corp for $16.4 billion, while Constellation Brands slid 14.8% after cutting its annual sales and profit forecasts.

Walgreens Boots Alliance jumped 23% after reporting an upbeat quarterly profit.

Declining issues outnumbered advancers by a 4.41-to-1 ratio on the NYSE and by a 3.74-to-1 ratio on the Nasdaq.

The S&P 500 posted five new 52-week highs and 30 new lows, while the Nasdaq Composite recorded 31 new highs and 167 new lows.

(Reporting by Johann M Cherian and Sukriti Gupta in Bengaluru; Editing by Maju Samuel)

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