U.S. stocks declined on Thursday as sluggish economic figures from around the world reminded investors about the hurdles that need to be overcome even as central banks try to prop up their respective economies with strong stimulus measures.
Manufacturing in China contracted for an 11th straight month in September, according to a private sector survey of factory managers; in the euro zone, a downturn in activity in the service sector steepened this month at the fastest pace since July 2009.
The number of Americans filing new claims for jobless benefits fell last week, but from an upwardly revised number the prior weak, with the underlying tone of the report pointing to some weakening in the labor market.
A separate report showed factory activity in the U.S. mid-Atlantic region shrank less than expected for September, but was the fifth straight monthly decline.
The S&P 500 has rallied more than 5 percent since the start of August, on growing expectations for central bank stimulus, which culminated in the U.S. Federal Reserve's announcement last week of a third quantitative easing plan.
"There was a lot of optimism and excitement about the news out of Europe and then the news about QE3, or QE forever, and this is probably a little bit of a reassessment of that," said Philip Wagner, senior vice president at Bryn Mawr Trust in Devon, Pennsylvania.
"You've got a question here of whether did things run ahead of themselves a little bit too fast - you look at the data here today, specifically, nothing is a positive surprise so it doesn't really give the bulls more enthusiasm."
Transportation stocks, sensitive to the nation's economic fortunes, were among the worst performers, with the Dow Jones Transportation average <.DJT> dropping 2.1 percent.
Railroad company Norfolk Southern Corp said weaker shipments of coal and merchandise as well as lower fuel-surcharge revenue would reduce its third-quarter earnings compared with a year earlier. Norfolk shares slumped 7.3 percent to $67.40.
The Dow Jones industrial average <.DJI> dropped 44.49 points, or 0.33 percent, to 13,533.47. The Standard & Poor's 500 Index <.SPX> lost 7.10 points, or 0.49 percent, to 1,453.95. The Nasdaq Composite Index <.IXIC> declined 17.92 points, or 0.56 percent, to 3,164.70.
UBS raised its target level for the S&P 500 by the end of 2012 to 1,525 from 1,375 Thursday, saying equity markets will climb after aggressive monetary easing by central banks.
"Over the short run, we believe that the 'risk on' trade will continue, with a rotation into the most volatile and economically sensitive stocks," said UBS's chief U.S. equity strategist Jonathan Golub in a research note.
Retailers' shares also fell. Bed, Bath & Beyond tumbled 7.9 percent to $63.36 after the company posted quarterly results that narrowly missed Wall Street estimates on account of higher costs.
Fellow retailer J.C. Penney Co Inc slid 8.1 percent to $26.74 after Chief Executive Ron Johnson said new shops within stores are doing much better than other parts of its department stores, but it was "way too early to draw conclusions" as the retailer is still rolling out the strategy.
The Morgan Stanley retail index <.MVR> declined 1.2 percent.
(Editing by Bernadette Baum)