* Sept nonfarm payrolls up by 142,000 vs 203,000 expected
* Unemployment rate unchanged at 5.1 pct
* Banks fall as chance of rate hike this year recedes
* Indexes down: Dow 1.56 pct, S&P 1.54 pct, Nasdaq 1.52 pct (Updates to open)
By Tanya Agrawal
Oct 2 (Reuters) - Wall Street opened sharply lower on Friday after data showed a less-than-expected rise in nonfarm payrolls in September, raising doubts that the economy is strong enough to allow the Federal Reserve to raise interest rates this year.
The three major indexes were down more than 1.5 percent.
U.S. employers added 142,000 jobs, compared with 136,000 in August and below the 203,000 that economists polled by Reuters had expected. August figures were also revised sharply lower.
The jobless rate held steady at 5.1 percent but average hourly wages fell by a cent to $25.09 during the month, and were up only 2.2 percent from the same month in 2014.
This is the last payrolls data before the Fed meets later this month.
“It’s an absolutely weak report all around,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets.
“So if you have a weak report here in combination with some of the other weakness that we are seeing across the globe, the odds (of a rate hike) get dinged for December.”
U.S. interest rates futures rose sharply after the jobs report. Odds of a December rate hike fell to a little over 27 percent, compared with 44 percent shortly before the report.
At 9:35 a.m. ET (1335 GMT), the Dow Jones industrial average was down 254.08 points, or 1.56 percent, at 16,017.93, the S&P 500 was down 29.58 points, or 1.54 percent, at 1,894.24 and the Nasdaq composite was down 70.53 points, or 1.52 percent, at 4,556.55.
Nine of the 10 major sectors were lower, with the financial index’s 1.83 percent fall leading the decliners. The utilities index was the only index in the black.
Shares of major U.S. banks including JPMorgan, Citigroup, Bank of America and Wells Fargo were all sharply down.
Bonds prices rallied and the dollar fell 1 percent against a basket of major currencies after the report.
The CBOE Volatility index, known as the “fear gauge”, jumped 7.5 percent to 24.31, above its long-term average of 20.
The S&P 500 and the Nasdaq closed slightly higher on Thursday in a choppy start to the fourth quarter as investors waited for the jobs report and the quarterly earnings season.
Financial markets have been roiled by worries about the global economy. The Fed’s decision to keep rates unchanged added to the uncertainty.
A small hike in rates could help calm volatile equity markets and start giving the Fed some ammunition to deal with any future economic slowdowns.
Fed Vice Chair Stanley Fischer is scheduled to speak in Boston at 1:30 p.m.
Micron Technology was up 3.9 percent at $15.35 after the chipmaker posted better-than-expected quarterly earnings.
Declining issues outnumbered advancing ones on the NYSE by 2,197 to 477. On the Nasdaq, 1,927 issues fell and 374 advanced.
The S&P 500 index showed no new 52-week highs and 40 new lows, while the Nasdaq recorded 3 new highs and 83 new lows.
Reporting by Tanya Agrawal; Additional reporting by Abhiram Nandakumar; Editing by Savio D'Souza and Saumyadeb Chakrabarty