Crude oil prices soared by a once-unthinkable $10 on Friday, inciting a broad selloff on Wall Street and sending the Dow to its worst day in more than a year.  

Today's Market 

The Dow Jones Industrial Average slid 394.64 points, or 3.13% to 12209.81, the Standard & Poor’s 500 index dropped 43.37 points, or 3.09%, to 1360.68 and the Nasdaq Composite Index lost 75.38 points, or 2.96%, to 2474.56. The consumer-friendly Fox 50 fell 29.10 points, or 2.95%, to 957.35.

The huge selloff on Wall Street made Thursday's 200-point rally quickly disappear. The losses were across the board with airlines and financials taking the brunt of the damage. 

When the dust settled the Dow suffered its largest one-day point loss since February 2007 and closed at its lowest level since March 19. For the week the blue-chip index fell 3.5%, while the S&P slid 2.6% and the Nasdaq shed 1.9%. 

As if the scary crude oil prices weren't enough, the government said on Friday that the nation's unemployment rate rose by 0.5% in May -- the largest one-month rise in more than two decades. 

Oil's unprecedented rally sent the commodity to a new all-time record of $138.54 a barrel. Combined with Thursday's big gains, crude soared more than $16 in just 48 hours.

AIG (AIG) led the way down on the Dow on Friday, falling nearly 7% after The Wall Street Journal reported the insurer faces a pair of investigations over its credit default swaps. Also, American Express (AXP) and Boeing (BA) were more than 5% in the red.

All 30 stocks on the industrial average closed the day in negative territory, including energy titans Chevron (CVX) and ExxonMobil (XOM), which had been higher earlier in the day. 

“All of the good feeling from yesterday, at least at the moment, seems to have completely evaporated," Ted Weisberg of Seaport Securities told FOXBusiness at the market's open.

The market never had much of a chance to rally on Friday amid the gloomy headlines and with traders apprehensive to hold stocks over the weekend. 

“It’s definitely a one-two punch this morning," said Frank Davis, director of sales and trading at Lek Securities. “There's really no reason I could see people wanting to buy."

Crude oil posted its largest one-day surge ever on Friday, closing $10.75 higher at $138.54 a barrel. The previous record for a single day was set just a day ago at only $5.49. Crude's old record close was set on May 21 at $133.17 a barrel. Oil has more than doubled from its prices just a year ago. 

Experts cited every reason under the sun for the surge on Friday: The dollar took a hit over the past two days, energy traders worried about possible military action in Iran, Morgan Stanley (MS) predicted $150 oil by July 4 and some said speculators inflated the price. 

“You put it all together it was a prefect storm to drive these prices," said Phil Flynn, energy analyst at Alaron Trading and FOXBusiness contributor. “Traders down here never saw anything like it and they may never see anything like that again. This is the type of move that used to take five years or a decade and we saw it in a matter of hours.”

Energy prices have been a major worry of Wall Street since spiking to more than $135 a barrel last month. Not only do high oil prices cut into profits of companies like airlines, they put pressure on consumers already hurting from energy costs and tumbling home values. 

“It’s all speculation. What happened between last Friday and this Friday from a fundamental standpoint? Absolutely nothing," said Peter Cardillo, chief market economist at Avalon Partners. 

Meanwhile, Wall Street also reacted negatively Friday when the government said the nation's unemployment rate soared by 0.5% to 5.5% in May. It was the largest one-month rise since Feb. 1986. Economists surveyed by Dow Jones had only been expecting a slight 0.1% rise. 

The government attributed the rise to job cuts in construction and manufacturing sectors as well as an influx of new and returning job seekers.

On the other hand, the government reported a smaller-than-expected loss of 49,000 jobs in May. While the decline was better than the 60,000 economists had anticipated, it was also a rise from the 28,000 job decline in April. 

The data shows increased weakness in the U.S. labor market but does not show an outright collapse as of yet. In any case, it didn't exactly provide a reason for traders to buy stocks. 

"This is not the sky falling," said Art Hogan, chief market strategist at Jeffries & Co, who said he wasn't surprised by the rise in the rate. "That math doesn’t work. You can't have five months in a row of negative job creation and not have the unemployment rate go higher.”

Peter Boockvar of Miller Tabak called the report a "wake up call" for the bulls in the market who had previously been pointing to the relatively low unemployment rate as a positive. 

“There's a natural increase in the labor force every single month. Even though the job loss wasn’t that great, it doesn’t matter because the unemployment rate goes higher," said Boockvar. 

Among the biggest losers on Wall Street on Friday were the airlines and the financials. As a whole, airline stocks plunged just under 7% on the higher fuel costs. 

Washington Mutual (WM) led the financials lower on Friday, diving 12% to a 13-year low. It was the stock's eight-straight losing session. 

Corporate Movers 

Lehman Brothers (LEH) may raise $5 billion by early next week and report what is expected to be its first quarterly loss since going public in 1994, according to published reports. The struggling investment bank is in talks with at least one domestic pension fund and an overseas investor, Bloomberg news reported. Lehman may release the potential capital raise along with its earnings as early as next week, the New York Post reported. Lehman isn't scheduled to report results until sometime during the week of June 16. 

Yahoo!'s (YHOO) potential new board of directors should be open to selling the Internet giant to Microsoft (MSFT) in a friendly deal and replace its so-called "poison pill" severance plan, activist investor Carl Ichan said in a letter on Friday. Icahn is in the middle of a proxy fight to elect his own slate of directors to Yahoo, which has resisted being acquired by Microsoft. If his new board is elected, Icahn said he will ask it to oust CEO Jerry Yang and ask it to set a minimum of a $33 per share offer price. Yahoo! responded Friday afternoon, saying it is "open to any transaction including a sale to Microsoft" and that Icahn has "no credible plan" for operating the company. 

AIG (AIG) fell sharply on a Wall Street Journal report that the insurer faces a Securities and Exchange Commission and Department of Justice probe over allegedly overstating the value of credit default swaps. The financial instruments are contracts that insure against default of securities. Earlier this year AIG said its auditors found a "material weakness" in its accounting, the newspaper reported. 

Intel (INTC) said it has received a subpoena from the Federal Trade Commission, which is reportedly investigating the firm in an antitrust case. Intel rival Advanced Micro Devices (AMD) and other firms have begun to receive subpoenas for a probe into anti-competitive practices, The New York Times reported on its Web site. AMD has tried in the past to get the FTC to investigate Intel, which is the world's largest chip maker. 

Data Dump

The Commerce Department reported a larger-than-expected 1.3% rise in wholesale inventories in April. Economists surveyed by Dow Jones had only been expecting a 0.5% rise. 

World Markets

European markets closed sharply lower on Friday. The Dow Jones Euro Stoxx 50 Index, a gauge of the 50 biggest companies in Europe, fell 86.13 points, or 2.34%, to 3596.70. The FTSE 100, London's benchmark index, lost 88.50 points, or 1.48%, to 5906.80.

On the continent, Paris's CAC 40 Index dropped 111.74 points, or 2.28%, to 4795.32 while Germany's DAX fell 138.02 points, or 1.99%, to 6803.81.

In Asia, Tokyo's Nikkei 225 Index gained 148.32 points to 14489.44. Hong Kong's Hang Seng Index gained 146.89 points to 24402.18.