Non farm payrolls increased 173,000 last month after an upwardly revised 245,000 rise in July and below the 220,000 that economists polled by Reuters had expected. Unemployment rate dropped to 5.1 percent and wages accelerated.

The report underscored the U.S. economy's steady recovery in the face of volatile global financial markets and China's slowing growth, and kept alive the prospect of the U.S. Federal Reserve raising rates at its Sept. 16-17 meeting.

At 9:41 a.m. ET the Dow Jones industrial average was down 197.62 points, or 1.21 percent, at 16,177.14, the S&P 500 was down 20.95 points, or 1.07 percent, at 1,930.18 and the Nasdaq Composite was down 38.70 points, or 0.82 percent, at 4,694.80.

All the 10 major S&P sectors were lower with the energy index's 1.96 percent loss leading the decliners.

"The unemployment rate has fallen while wages have accelerated — that will certainly give the hawks more ammunition for a September rate hike," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

Although job growth numbers came in below expectations, the August employment reports have often been sharply revised upward due to seasonal fluctuations.

The recent turmoil in the market has prompted some investors to bet the Fed might wait until the end of the year to hike rates.