US STOCKS-Wall St off as pound crashes, jobs data keeps Fed on track

* Slightly less than expected jobs created in September

* Pound flash crash confounds traders; sterling off 4 pct on week

* Honeywell, PPG weigh on S&P

* Indexes down: Dow 0.15 pct, S&P 0.33 pct, 0.27 pct (Updates to close)

By Rodrigo Campos

NEW YORK, Oct (Shenzhen: 000069.SZ - news) 7 (Reuters) - U.S. stocks slipped on Friday as a drop in the British pound injected unwanted volatility to financial markets, while a weaker-than-expected jobs report was not enough to derail expectations for a rate hike from the Federal Reserve before the end of the year.

Major indexes posted their first negative week in four.

The pound lost 1.4 percent to the dollar on Friday, and at one point earlier it had tumbled as much as 10 percent over just a few minutes, a "flash crash" that fueled concerns about the vulnerability of the currency and triggered volatility across jittery markets.

Despite the sharp drop in sterling, the dollar index ended the day lower.

"I don't think the pound itself is going to hurt U.S. earnings, but the volatility and the big drop you've seen in the last week are disturbing," said Paul Zemsky, chief investment officer, Multi-Asset Strategies and Solutions at Voya Investment Management in New York.

The pound lost more than 4 percent versus the U.S. dollar this week and hit its lowest level in more than 30 years.

Stocks were also weighed by a report showing the U.S. economy created 156,000 jobs last month, shy of the estimate for 175,000, while the unemployment rate ticked up to 5 percent.

It was the third straight month of slowing growth in job creation, but the data was not seen as weak enough to prevent the Fed from raising rates later this year.

"The Fed tightening into economic strength is fine, but it is a headwind when valuations are high," Zemsky said.

At 17 times, the S&P 500's price-to-earnings ratio is near the highest it has been over the past decade.

A near 9 percent decline in shares of Honeywell was the biggest drag on the S&P, a day after the aero parts supplier lowered the upper end of its 2016 sales and profit forecast.

The Dow Jones industrial average fell 28.01 points, or 0.15 percent, to 18,240.49, the S&P 500 lost 7.03 points, or 0.33 percent, to 2,153.74 and the Nasdaq Composite dropped 14.45 points, or 0.27 percent, to 5,292.41.

The three indexes closed down for the week after three consecutive weeks of gains.

Adding to trader jitters, Democrat Hillary Clinton and Republican Donald Trump will face off on Sunday in the second of three debates ahead of the November presidential election.

Voya's Zemsky said markets have priced a Clinton win and some traders may have hedged positions ahead of the weekend.

Among other heavy losers on Friday, chemical company PPG dropped 8.3 percent to $93.73 after forecasting a third-quarter loss and Tyson Foods (NYSE: TSN - news) plunged 8.9 percent to $67.75 after Pivotal Capital downgraded its stock to "sell" from "buy".

Declining issues outnumbered advancing ones on the NYSE by a 2.27-to-1 ratio; on Nasdaq (NasdaqGS: NDAQ - news) , a 1.89-to-1 ratio favored decliners.

The S&P 500 posted 4 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 55 new highs and 39 new lows.

About 6.6 billion shares changed hands in U.S. exchanges, compared with the 7.1 billion daily average over the last 20 sessions. (Reporting by Rodrigo Campos; Editing by Chizu Nomiyama)