The lack of hiring in the US last month surprised economists, who were expecting about 93,000 jobs to be added.
Previously reported hiring figures for June and July were revised lower.
The unemployment rate held steady at 9.1 per cent – it has been above 9 per cent in all but two months since May 2009.
The jobs crisis has led President Barack Obama to schedule a major speech Thursday night to propose steps to stimulate hiring.
Traders waited for signs that the US Federal Reserve might take action at its September meeting to support the economy – perhaps a third round of bond purchases, dubbed quantitative easing III or QE3, analysts said.
“Right now, the possibility has increased,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. “I think they have to do something. The markets are expecting QE3.”
European shares opened sharply lower and closed with even heavier losses Monday. Britain’s FTSE 100 shed 3.6 per cent to 5,102.58. Germany’s DAX slumped a massive 5.3 per cent to 5,246.18, and France’s CAC-40 tumbled 4.7 per cent to 2,999.54.
Markets in the US were closed for the Labour Day holiday.
Banking stocks were among the hardest hit after the US government on Friday sued 17 financial firms for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.
Among those targeted by the lawsuits were Bank of America Corp, Citigroup Inc, JP Morgan Chase & Co, and Goldman Sachs Group Inc.
Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.
Renewed jitters over the eurozone debt crisis also contributed to the slump in financial stocks amid concerns they would need to raise new capital. Deutsche bank closed down 8.9 per cent in Frankfurt while Societe Generale in Paris shed 8.6 per cent.
An international debt inspectors’ review of Greece’s finances was interrupted on Friday amid disagreements over the country’s deficit figures. The review will be resumed in about 10 days and must be completed in order for the country to receive its bailout loans at the end of the month.
Signs that the Italian government’s commitment to its austerity programme is wavering have also shaken investors.
Prime Minister Silvio Berlusconi’s government has backtracked on some deficit-cutting measures, prompting EU economic officials to urge it to stick to its promised plan.
The yields in so-called peripheral eurozone countries, such as Greece, Italy and Spain, rose sharply while those of Germany – whose bonds are widely considered a safe haven – fell.
In Asia, indexes closed sharply lower. Japan’s Nikkei 225 stock average sank 1.9 per cent to close at 8,784.46, with sentiment also undermined by the persistent strength of the yen, which hurts exporters.
Australia’s S&P/ASX 200 fell 2.4 per cent and South Korea’s Kospi slid 4.4 per cent. Hong Kong’s Hang Seng slid 3 per cent. Benchmarks in Singapore, Taiwan, New Zealand and the Philippines also were down.
Shanghai’s benchmark Composite Index fell two per cent to 2,478.74, its lowest close in 13 months. The Shenzhen Composite Index lost 2.4 per cent.
In currencies, the euro weakened to US$1.410 from US$1.4187 in New York late Friday. The dollar was roughly flat at 76.87 yen.
Last month, the dollar fell under 76 yen, which was a new post-World War II high for the Japanese currency.
Benchmark oil for October delivery was down US$2.12 to US$84.33 a barrel in electronic trading on the New York Mercantile Exchange.
In London, Brent crude for October delivery was down US$1.63 at US$110.70 on the ICE Futures exchange.