US STOCKS-Banks lead Wall St slide after dismal jobs data
* May nonfarm payrolls up 38,000 vs. est 164,000
* Traders slash chances of a rate hike in June
* S&P financials set for biggest 1-day fall in 2 months
* Indexes down: Dow 0.25 pct, S&P 0.40 pct, Nasdaq 0.65 pct (Updates to early afternoon)
By Tanya Agrawal and Yashaswini Swamynathan
June 3 (Reuters) - Financial stocks led Wall Street lower in early afternoon trading on Friday after shockingly weak nonfarm payrolls data for May raised doubts if the economy could withstand an interest rate hike in the near term.
The U.S. Labor Department said payrolls increased by only 38,000 last month, the smallest gain since September 2010 and well below economists' forecasts of 164,000. The jobless rate fell to 4.7 percent, the lowest since November 2007.
"This was not a huge miss or off-the-mark, this was a shocking miss," said Mark Grant, managing director and fixed-income strategist at Hilltop Securities, Fort Lauderdale. "This will change the Fed's viewpoint dramatically, in my opinion."
Traders slashed the odds of the Federal Reserve raising rates in June to 4 percent after the data from 20 percent previously, according to CME Group's FedWatch program. The probability of a July rate hike was reduced to 34 percent from 49 percent. Continuación...