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Stocks end lower as Cyprus spooks investors

Stocks finished in negative territory Thursday, dragged by techs, amid ongoing concerns over Cyprus' ability to get a bailout.

In the latest development, the Governor of the Central Bank of Cyprus put out a statement to outline a plan to save the nation's struggling banking system and wants an immediate vote on it by the country's House of Representatives. The plan includes protecting bank accounts under 100,000 euros.

(See: Scenes From the Cyprus Crisis)

Market reaction was muted, however, with major averages continuing to trade in negative territory.

The Dow Jones Industrial Average finished in negative territory, led by Cisco and IBM. The blue-chip index tumbled more than 120 points at session lows.

The S&P 500 and the Nasdaq also closed in the red. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped above 13.

Most key S&P sectors ended lower, led by techs and materials. Telecoms eked out a small gain.

"It looks like the rally's gotten tired—we've been up 13 in the last 16 weeks so we may be due for a pullback," said Jeff Kleintop, Chief Market Strategist for LPL Financial. "In the last few years, late March and early April's been a time when the market tends to peak and sees a 5 to 10 percent pullback. But we'll see a bounce after that, so individual investors can use this market to their advantage and look to buy on the dips."

In Europe, the ECB told Cyprus it has until next Monday to agree to a bailout plan, threatening to cut off funding to the nation's cash-strapped banks. Earlier this week, Cypriot lawmakers voted against a levy on bank deposits. Banks will remain closed until next Tuesday and Cyprus is considering some form of capital controls to prevent capital flight once they re-open. The country's stock exchange will also be closed on both Thursday and Friday.

Meanwhile, troubled Cyprus Popular Bank imposed a 260-euro-per-day limit on ATM withdrawals in an effort to deal with high demand. Anxious customers formed long lines at ATM machines to withdraw funds amid rumors that the bank was to be closed down, later denied by the central bank.

(Read More: Cyprus Shows 'Cracks in the Floor': Godfrey)

The head of the Eurogroup of finance ministers Jeroen Dijsselbloem, told CNBC that while he was confident an agreement could be found over Cyprus, Russia might not be the source of the aid.

Adding to woes in Europe, business activity in Germany slowed in March. European shares finished lower.

"We're seeing the core economies of Europe like France and Germany, which had been growing for years despite the peripheral countries, all in recession now. The economic malaise in Europe is expected to continue," warned Kleintop. "Cyprus is the least of Europe's problems right now."

Among earnings, Oracle slumped nearly 10 percent, its biggest drop in 15 months, after the software company reported earnings and revenue that missed forecasts as software sales and subscriptions dropped 2 percent compared to the company's estimates for a gain of 3 to 13 percent. At least three brokerages slashed their price target on the company.

(Read More: Oracle Dip Temporary: Analysts)

Lululemon posted a profit that topped expectations, but the yogawear maker said it expects earnings to decline in the current quarter due to the see-through yoga pants recall earlier this week.

KB Home gained after the homebuilder posted a narrower-than-expected loss and a gain in new home orders.

Nike and Micron are expected to post earnings after the closing bell.

(Read More:Nike Earnings: 3 Things to Watch)

Among techs, Hewlett-Packard boosted its quarterly dividend by 10 percent to 14.52 cents a share. The news came a day after HP's board members were re-elected, but shareholders remained disappointment over the company's $11 billion purchase of British software firm Autonomy.

Cisco slumped after FBR Capital cut its rating on the networking equipment maker to "underperform" from "market perform" and lowered its price target to $17 from $22.

Meanwhile, Yahoo bucked the negative trend after Oppenheimer boosted its rating on the company to "outperform" from "perform" and lifted its price target to $27 from $22.

On the economic front, weekly jobless claims rose to a seasonally adjusted 336,000, according to the Labor Department, while a trend reading dropped to its lowest in five years, signaling an ongoing recovery in the labor market.

Meanwhile, existing home sales climbed to an annual rate of 4.98 million in February, hitting a three-year high, according to the National Association of Realtors. Still, the reading was slightly below Reuters' estimates of a rise to a 5 million-unit rate.

(Read More: Finally: Supply of Homes for Sale Begins to Rise)

"Housing is going to remain very positive for the markets," said Kleintop, adding that homebuilders should perform well over the next few months as a result.

Also on the economic front, leading indicators gained for a third month, according to the Conference Board. And factory activity in the mid-Atlantic region grew in March after contracting for two months, according to the Philadelphia Federal Reserve Bank.

In Washington, the U.S. House passed a bill to extend government funding through September, avoiding a shutdown at the end of the month.

—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter:@JeeYeonParkCNBC)