Stocks fell sharply on Thursday after payrolls data showed more Americans than expected lost their jobs in June, dimming hopes of a quick economic recovery.

U.S. employers cut 467,000 jobs in June, far more than the 363,000 forecast by a Reuters survey, while the unemployment rate rose to 9.5 percent, the government said on Thursday in a report that showed a labor market continuing to struggle.

A separate report showed U.S. factory orders came in better than expected in May, but this provided little comfort in what had turned into a broad sell-off in equities by mid-morning.

The emphasis has been on jobs, and the fact that the number came in worse than expected is all the reason in the world why the market would sell off, said Kevin Caron, market strategist at Stifel Nicolaus & Co in Florham Park, New Jersey.

One of the camps that has been behind the S&P's 40 percent improvement from its lows has been the green shoots crowd that have been looking for more of a V-shaped type of recovery in the economy, and if data like this continues to come in, it's going to make that case very hard to sustain.

Commodity prices eased and safe-bet U.S. Treasuries edged higher after the jobs data. Crude oil fell almost 4 percent to under $67 a barrel, denting shares in energy companies.

U.S. oil producer Exxon Mobil Corp fell 1.7 percent to $69.37, and its sector peer Chevron Corp lost 1.6 percent to $65.43.

Crude prices were helped lower by a stronger U.S. dollar, which moved 0.8 percent higher against a basket of major currencies <.DXY> after hitting a three-week low on Wednesday. The dollar has been volatile in recent weeks, in part because of a continued debate over its position as a global reserve currency.

The Dow Jones industrial average <.DJI> dropped 173.44 points, or 2.04 percent, to 8,330.62. The Standard & Poor's 500 Index <.SPX> fell 20.96 points, or 2.27 percent, to 902.37. The Nasdaq Composite Index <.IXIC> lost 48.24 points, or 2.61 percent, to 1,797.48.

(Editing by Padraic Cassidy)

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