By Tanya Agrawal
(Reuters) - U.S. stocks added to their losses in early afternoon trading on Thursday after data showed U.S. nonfarm productivity fell sharply and investors digested the International Monetary Fund's comment urging the Federal Reserve to delay a rate hike.
Wall Street was pressured earlier in the day due to a selloff in the global bond market after the ECB said that investors should get used to volatility in the market.
The selloff, however, eased by mid-morning with U.S. long-term Treasury debt yields falling from eight-month peaks.
The IMF said the Fed should not raise rates until there are clear signs of a pickup in wages and inflation.
"Based on the mission's macroeconomic forecast, and barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016," the fund said.
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Nonfarm productivity fell at a 3.1 percent annual rate instead of the previously reported 1.9 percent pace, leading to a jump in labor-related production costs. This was the first back-to-back fall in productivity since 2006.
Economists say muted productivity growth, if sustained, raises the risk of a faster pick-up in inflation, and calls for more aggressive interest rate increases than the Federal Reserve and financial markets currently anticipate.
"It matters only if the Fed listens to the IMF. Ultimately, it comes down to the economic data and a lot can change between now and September," said Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin, Texas.
Other data showed that initial claims for state unemployment benefits dropped to 276,000 for the week ended May 30. Economists had forecast claims falling to 279,000.
The numbers point to a resilience in the labor market despite moderate economic growth, and come a day ahead of the monthly jobs data.
At 12:49 a.m. ET the Dow Jones industrial average was down 118.21 points, or 0.65 percent, at 17,958.06, its sharpest fall in eight sessions.
The S&P 500 was down 11.72 points, or 0.55 percent, at 2,102.35, while the Nasdaq Composite was down 22.88 points, or 0.45 percent, at 5,076.35.
All of the 10 major S&P 500 sectors were lower with materials sector leading the losses with a 1.28 percent decline.
T-Mobile shares rose 4 percent to $39.86 after the Wall Street Journal reported that Dish Networks is in talks to merge with the company. Dish rose 5 percent to $74.34.
AerCap Holdings fell 3.1 percent to $48.76 after insurer AIG hastened efforts to sell stake in the aircraft leasing company.
Five Below jumped 8 percent to $37.94 after the teen merchandise retailer increased its full-year forecast.
Bio-Reference Laboratories soars 26 percent to $41.58 after Opko Health said it would buy the company for $1.47 bln. Opko fell 10.8 percent to $17.05.
Declining issues outnumbered the advancers on the NYSE by 2,218 to 736, for a 3.01-to-1 ratio on the downside. On the Nasdaq, 1,785 issues fell and 867 advanced for a 2.06-to-1 ratio favoring decliners.
The S&P 500 index showed three new 52-week highs and five new lows while the Nasdaq recorded 66 new highs and 25 new lows.
(Editing by Saumyadeb Chakrabarty)