The Dow Jones Industrial Average fell 81 points, or 0.6%, to 13846, extending Wednesday's declines. The Standard & Poor's 500-stock index gave up 12 points, or 0.8%, to 1499, as eight of 10 sectors traded in the red and growth-sensitive materials, technology and energy shares weighed.
The tech-heavy Nasdaq Composite Index lost 40 points, or 1.2%, to 3125. Blue chips posted their second-biggest drop of the year Wednesday, as investors were jarred by the potential for an earlier-than-expected end to the Fed's experimental bond-buying programs, known as quantitative easing.
Stocks extended their declines after the Philadelphia Federal Reserve's February index of business activity, an indicator of business conditions for manufacturers in the region, posted a surprise decline to -12.5 from January's -5.8.
Separately, initial claims for unemployment benefits rose to 362,000 in the latest week, more than the 350,000 expected. The consumer price index for January was unchanged on the month, but increased by 0.3% excluding volatile food and energy costs.
Sales of existing homes for January showed a slight increase to a seasonally adjusted annualized rate of 4.92 million, which was mostly in line with expectations.
The Conference Board's Leading Economic Index for January gained 0.2%, just below expectations of a 0.3% rise. Wal-Mart gained 2.6% after the blue-chip discount retailer reported earnings that exceeded analysts' estimates, helping to offset a first-quarter earnings outlook that was below analyst projections.
Tesla Motors skidded 9.9% after the electric-car maker reported a wider-than-anticipated fourth-quarter loss and revenue that rose less than expected. Gross margin narrowed sharply. Dow component Hewlett-Packard was mostly flat. Its fiscal first-quarter results are to be released after the closing bell.
EUROPEAN STOCK MARKETS, BONDS
European stocks slumped Thursday, hurt by downbeat euro-zone economic data and worries that the Federal Reserve could reduce its stimulus measures.
Italian shares were particularly battered as jitters about weekend elections added to investors' worries about the economic health of the 17-nation euro bloc.
The benchmark Stoxx Europe 600 index dropped 1.5% to 284.86, its lowest close in two weeks, with banks and miners posting some of the biggest losses.
European stocks tracked losses in the U.S. made Wednesday after the latest Federal Open Market Committee minutes showed officials were worried that the U.S. central bank's easy-money policies could lead to instability in financial markets and might be difficult to pull back in the future.
That was followed by disappointing preliminary readings of purchasing managers' indexes from euro-zone economies early Thursday.
The preliminary composite PMI for the euro zone slumped to a two-month low of 47.3 in February, indicating the region's downturn steepened.
Economists surveyed by Dow Jones Newswires had forecast a reading of 48.5. The manufacturing PMI for Germany rose to 50.1, a 12-month high, while the same reading for France climbed to 43.6, a 2-month high, but fell short of expectations.
A reading above 50 indicates expansion. The data hit the euro and oil prices, and pushed money into safe-haven assets such as German government bonds.
The U.K.'s FTSE 100, which had hit its highest close since 2008 earlier in the week, was down 1.6% to 6291.54. Germany's DAX fell 1.9% to 7583.57 and France's CAC-40 dropped 2.3% to 3624.80.
Italy's FTSE Mib fell 3.1% to 16.009.55 investors as worried that a new government could end the country's current reformist drive.
Banks bore the brunt of the selloff; UniCredit dropped 4.3% and Intesa Sanpaolo declined 4.1%. Banks also fell elsewhere in Europe. Societe Generale lost 4.5% in Paris, and HSBC Holdings fell 2.3% in London.
Miners, which are sensitive to economic swings, also declined. BHP Billiton shaved off 4%, AXA fell 3.1% on a drop in full-year net profit. The insurer said it would implement additional cost-cutting measures. BAE Systems led gains in the FTSE 100, climbing 4.1%, after it announced a share buyback program and said growth in new markets should offset the impact of shrinking military spending in the U.S. and Europe.
ASIA-PACIFIC STOCK MARKETS, BONDS
Asian markets fell Thursday, with Sydney and Shanghai notching up their largest declines for 2013 after Federal Open Market Committee meeting minutes released Wednesday showed concern among Federal Reserve officials over the central bank's stimulus measures.
Stocks in mainland China were the worst performers on Thursday, with the Shanghai Composite dropping 3% to 2325.95--its deepest percentage decline since November 2011.
It is also by far the biggest drop for the market since its early December trough, which resulted in a 22.4% rally to Wednesday.
Investors were spooked after China's cabinet Wednesday repeated a pledge to use measures including higher down payments and home-purchase limits to clamp down on real-estate speculation and prevent prices from spiraling.
Financial and energy stocks were particularly active: China Shenhua Energy fell 4.5% and Citic Securities lost 5.3%. The falls in mainland China had a knock-on effect in Hong Kong, where the Hang Seng Index lost 1.7% to 22906.67, with Chinese banks taking heavy losses: China Construction Bank was off 2.5% and Bank of Communications dropped 2.4%.
Also in Hong Kong, Belle International plunged 16.8% after the Chinese footwear retailer said that it will only post a slight growth in 2012 net profit.
More broadly, regional markets fell after the minutes from the U.S. Federal Reserve's January policy meeting revealed worries that its current stimulus measures could result in instability in financial markets and might be difficult to remove in the future.
Some of the officials said the central bank should change the pace of its asset purchases, while others argued the easing might need to remain in place until the job market improves "substantially." Other markets ended the day lower. Japan's Nikkei Stock Average was off 1.4% at 11309.13 and South Korea's Kospi Composite fell 0.5% to 2015.22.
Base metals on the London Metal Exchange closed significantly lower Thursday after the dollar strengthened and sentiment toward risk-related assets soured following the Federal Reserve's minutes of its January meeting.
At the close of open-outcry trading, LME three-month copper was 1.3% lower from Wednesday's settlement, at $7,860 a metric ton. U.S. crude futures fell 2.5% Thursday to the lowest settlement this year after weekly government data showed an increase in domestic oil stockpiles.
The Energy Information Administration said oil stockpiles increased by 4.1 million barrels last week, above analysts' average forecast of a 1.7-million-barrel increase.
The rise sent total stockpiles to 376.4 million barrels, the highest level since July. Light, sweet crude for April delivery settled $2.38 lower at $92.84 a barrel on the New York Mercantile Exchange.
Brent crude on the ICE futures exchange for April delivery traded $1.593 lower at $113.67 a barrel. Gold futures inched into positive territory as some investors repurchased previously sold positions to lock in profits on gold's five-day slide, while others bought gold at levels not seen in seven months.
The most actively traded contract, for April delivery, rose 60 cents to settle at $1,578.60 a troy ounce on the Comex division of the New York Mercantile Exchange.
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