NEW YORK - A strong jobs report shook up the financial markets Friday.

U.S. employers added 295,000 jobs last month, the government said. That was more than economists were expecting and, combined with a drop in the unemployment rate, raised the likelihood of the Federal Reserve's raising interest rates sooner than had been expected.

The dollar surged and Treasurys fell as investors factored in the possibility that the Fed could implement as soon as June its first rate hike in almost a decade. The prospects of higher interest rates sent stocks tumbling, and the market logged its worst day in two months.

The Dow Jones industrial average dropped 278.94 points, or 1.54 percent, to 17,856.78. The Nasdaq composite fell 55.44 points, or 1.11 percent, to 4,927.37. The Standard & Poor's 500 index fell 29.78 points, or 1.42 percent, to 2,071.26.

Stocks opened lower, and the losses accelerated throughout the day. By the close of trading, the S&P 500 index had logged its biggest one-day loss since Jan. 5.

The yield on the benchmark 10-year Treasury note jumped to 2.25 percent, from 2.12 percent late Thursday.

Fed policymakers have held interest rates close to zero for more than six years to stimulate growth and boost the economy. That stimulus has helped underpin a six-year bull market in stocks.

"We're moving to another chapter here," said Jim Russell, a portfolio manager at wealth manager Bahl & Gaynor. "Certainly, the number does put pressure on the Fed to move."

Some investors said that the sharp sell-off was an overreaction. "The Fed is not going to raise interest rates from zero to 5 percent overnight," said Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management.

The dollar jumped after the release of the jobs figures. The euro, already at 12-year lows, slid to $1.0848. The dollar rose against the Japanese yen, climbing to 120.72 yen.

The price of U.S. oil fell sharply on the dollar's strength. Benchmark U.S. crude fell $1.15 to close at $49.61 a barrel in New York. Brent crude, a benchmark for international oils used by many U.S. refineries, fell 75 cents to close at $59.73 a barrel in London.

Gold fell $31.90 to $1,164.30 an ounce, silver fell 35 cents to $15.81 an ounce and copper lost four cents to $2.61 a pound.

In other futures trading on the NYMEX, wholesale gasoline fell 0.5 cent to $1.882 a gallon. Heating oil fell 0.8 cents to $1.869 a gallon. Natural gas fell 0.2 cent to close at $2.84 per 1,000 cubic feet.