U.S. stocks closed down more than 1 percent on Friday as investors weighed a jobs report that indicated an interest rate hike could come sooner rather than later. "Good news is bad news again," said Gina Martin Adams at Wells Fargo. Adams said there was a quick jump in the Fed Funds futures this morning. "The percentage chance for a June hike went from 18 percent to 25 percent," she said. February's nonfarm jobs report showed a gain of 295,000, above expectations of 240,000 in February, down from 257,000 in January. The unemployment rate fell to 5.5 percent, while hourly wages ticked up 0.1 percent, below consensus and off the surprise 0.5 percent gain in January.

"I think a 5.5 percent unemployment rate clinches a June rate hike. which means 'patient' comes out in a week and a half," said Peter Boockvar, chief market analyst at The Lindsey Group.

The report sent turbulence into bond markets, with the U.S. 10-year Treasury note yield rising to 2.25 percent and the 2-year surging to 0.73 percent on increased anticipation of an interest rate hike.

In reaction to rates, the Dow Utilities fell below its 200-day moving average for the first time since January 2014. In the S&P 500, utilities fell more than 3 percent as the greatest laggard.

Read MoreSurge! Job creation jumps despite tough winter

The Dow Jones industrial average closed below 18,000 for the first time since February 19. The index had its worst day in a over a month, briefly falling more than 300 points, down more than 1.5 percent, with Johnson & Johnson and Procter and Gamble the greatest decliners

All three major indices closed down nearly 2 percent for the week, despite setting records on Monday, when the Nasdaq closed above the psychologically important 5,000 level for the first time since March 2000.

"The market is fearful of the Fed changing its line," said Peter Cardillo, chief market economist at Rockwell Global Capital. "I think today is a bit of an overreaction to the jobs data."



Major U.S. Indexes

The U.S. dollar rose more than 1 percent against major world currencies. On the other hand, the euro breached $1.09 after the report, extending Thursday's decline from quantitative easing news in the euro zone.

"I don't really think much of it. I would have liked to see something more dramatic in one direction or another. I think the economy is flattening out. People can look at it and pull anything they want. Labor force participation seems stuck," said Gary Chaison, professor at industrial relations at Clark University.

However, he said "I think this will give some encouragement to the Fed to act next month (which is thinking) we have to get here. We have to jump start the system." John Canally, strategist and economist at LPL Financial, said the Fed wouldn't hike rates until wage gains strengthened. "It's wages they're concerned about. Average hourly earnings can't get lift off here," he said. "The labor market is tightening but it's not tightening enough to push average hourly earnings." Read MoreWhy the Dow Jones Industrial Average matters Apple is expected to join the Dow on March 18, replacing AT&T. Shares of the iPhone maker held higher but below records, while the wireless services provider closed down 1.5 percent.

It's "good news," said Kate Warne, investment strategist at Edward Jones. "The Dow should react well, but move a lot different than we're used to." "It is a major change. It has been discussed everywhere," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. "Obviously it's going to be a positive item. It represents the market that we're trying to imitate better than AT&T." Apple will hold a special event on Monday, during which analysts expect more details on the Watch.

The U.S. trade deficit for January fell 8.3 percent to $41.8 billion. In corporate news, Staples reported a 3.7 percent fall in quarterly sales, as a strong dollar and waning demand for computers and accessories hurt profits.

The office supply retailer posted a net loss attributable to the company of $260.4 million, including a pre-tax charge of $410 million as a result of impairment of goodwill in its international operations. Shares in the firm dipped in pre-market trading. The Dow Jones industrial average closed down 278.94 points, or 1.54 percent, at 17,856.78, with Johnson & Johnson leading all blue chips lower. The S&P 500 closed down 29.78 points, or 1.42 percent, at 2,071.26, with utilities down 3 percent to lead all 10 sectors lower. The Nasdaq traded down 55.4 points, or 1.11 percent, at 4,927.37. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.