* Nonfarm payrolls up by 173,000 vs 220,000 expected
* Unemployment rate falls to 5.1 percent from 5.3 percent
* Caterpillar falls after broker downgrade
* Indexes down: Dow 1.21 pct, S&P 1.07 pct, Nasdaq 0.82 pct (Updates to open)
By Tanya Agrawal
Sept 4 (Reuters) - Wall Street opened lower on Friday as investors assessed August jobs data, which showed that fewer-than-expected jobs were added to the economy even as unemployment rate dropped to its lowest in more than seven years.
Non farm payrolls increased 173,000 last month after an upwardly revised 245,000 rise in July and below the 220,000 that economists polled by Reuters had expected. Unemployment rate dropped to 5.1 percent and wages accelerated.
The report underscored the U.S. economy's steady recovery in the face of volatile global financial markets and China's slowing growth, and kept alive the prospect of the U.S. Federal Reserve raising rates at its Sept. 16-17 meeting.
At 9:41 a.m. ET (1341 GMT) the Dow Jones industrial average was down 197.62 points, or 1.21 percent, at 16,177.14, the S&P 500 was down 20.95 points, or 1.07 percent, at 1,930.18 and the Nasdaq Composite was down 38.70 points, or 0.82 percent, at 4,694.80.
All the 10 major S&P sectors were lower with the energy index's 1.96 percent loss leading the decliners.
"The unemployment rate has fallen while wages have accelerated - that will certainly give the hawks more ammunition for a September rate hike," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
Although job growth numbers came in below expectations, the August employment reports have often been sharply revised upward due to seasonal fluctuations.
The recent turmoil in the market has prompted some investors to bet the Fed might wait until the end of the year to hike rates.
But Fed Vice Chairman Stanley Fischer said last Friday it was still too early to decide if the volatility, which left the S&P 500 with its biggest monthly drop in three years in August, had made a September hike unfeasible.
Marcus Bullus, trading director at MB Capital, said the August jobs data will do little to assuage investors reeling from the recent market volatility.
"The August figure is an unconvincing start to the fall and will trigger even more concern in the markets about the state of the global economy."
The Fed has said it will increase rates only if it sees sustained economic recovery. While the labor market continues to gain strength, inflation stubbornly remains below the 2 percent target set by the central bank.
Separately, Richmond Fed President Jeffrey Lacker said he had seen enough healing in the U.S. labor market to warrant raising interest rates soon.
Near-zero rates have allowed the U.S. stock market to stage a spectacular bull-run since the financial crisis. Higher interest rates increase the cost of borrowing and impact the profit margins of companies.
Caterpillar's shares were down 2 percent at 72.93 after Baird downgraded the stock to "neutral".
Netflix was down 1.9 percent at $98. The stock has fallen for the past five days.
Declining issues outnumbered advancing ones on the NYSE by 2,384 to 284. On the Nasdaq, 1,801 issues fell and 483 advanced.
The S&P 500 index showed no new 52-week highs and 7 new lows, while the Nasdaq recorded 3 new highs and 34 new lows. (Reporting by Tanya Agrawal in Bengaluru; Additional reporting by Alexandre Boksenbaum in Paris; Editing by Savio D'Souza and Saumyadeb Chakrabarty)