GLOBAL MARKETS-Zero US job growth spark bonds, gold rally

* Treasuries surge; long US bond yields at Feb 2009 lows

* Swiss franc, gold also up on flight to safety

* Stocks dive after Aug U.S. jobs show no growth from July (Updates markets)

By Barani Krishnan

NEW YORK, Sept 2 (Reuters) - Paralysis in the U.S. jobs market reinforced fears of recession on Friday, driving investors out of stocks and into the safety of bonds, gold and the Swiss franc.

World stocks fell nearly 2 percent after the U.S. Labor Department said employers added no new jobs last month and July's figure was revised lower. For more see [ID:nOAT004865].

The biggest reaction came in the U.S. Treasuries market, where the yield on the 30-year bond hit two-and-a-half-year lows on growing bets the dismal data will compel the Federal Reserve to take additional steps to boost the economy.

After a treacherous August of out-sized market volatility, the jobs report feeds worries that September could bring more of the same, especially if economic data rekindles fears of another recession.

"There are a lot of confidence issues in the marketplace; the jobs number only made things worse," said Sal Arnuk, co-manager of trading at Themis Trading in Chatham, New Jersey.

At 2:30 p.m. (1830 GMT), Wall Street's Dow Jones industrial average <.DJI> was down 258.76 points, or 2.25 percent, at 11,234.81. The Standard & Poor's 500 Index <.SPX> was down 32.08 points, or 2.66 percent, at 1,172.34. The Nasdaq Composite Index <.IXIC> was down 71.30 points, or 2.80 percent, at 2,474.74.

The MSCI world equity index <.MIWD00000PUS> was down 2.3 percent while European stocks <.FTEU3> slid 2.5 percent. Emerging stocks <.MSCIEF> fell 1.8 percent.

U.S. President Barack Obama, in a speech set for Sept. 8, will unveil a jobs program he hopes will provide "meaningful" tax relief and help the nation's long-term unemployed, a top aide told Reuters Insider. [ID:nWNA7806] [ID:nRTV258655]

Some think stocks will suffer from anemic jobs growth, at least for a while.

"What the market is looking for this time, realizing that unemployment is a barrier, and until the federal government wakes up and realizes what the restraints are and designs a program attacking restraints, it's not going to make much progress," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

Benchmark 10-year Treasury notes

In Treasury Inflation Protected Securities trading, the yield on 10-year TIPS

There is now a growing expectation the Federal Open Market Committee will extend the maturity of its $1.65 trillion Treasuries holdings at its Sept. 20-21 policy meeting.

The intended effect would be to push rates lower throughout the economy in an attempt to ignite consumer demand.

"This (jobs) report will certainly strengthen the case for the doves on the committee going into the next meeting later this month," said Millan Mulraine, senior U.S. macro strategist with TD Securities in New York.

In a research note, Goldman Sachs economists said they expect the Fed will announce plans to lengthen the average maturity of its portfolio, "with sales of relatively short-dated Treasuries and purchases of relatively long-dated Treasuries."

The 30-year Treasury bond

Bund futures rose 1.2 percent, hitting a record high on safe-haven demand.

The Swiss franc

Gold futures rose as much as 3.0 percent, climbing just shy of $1,885 an ounce. [GOL/]

Crude oil in New York was down 2.7 percent to less than $87 a barrel, after slipping to a session low $85.42, on worries a weaker U.S. economy would hurt energy demand. The United States is the world's No. 1 energy consumer. [O/R]

The euro