Stocks do about face and sink on 'fiscal cliff' worries

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By JeeYeon Park

Stocks came under pressure Thursday, a day after major averages logged a massive post-election drop, as ongoing concerns over the looming "fiscal cliff" trumped a pair of better-than-expected economic reports. 

The Dow Jones Industrial Average was in the red, after plummeting more than 300 points in the previous session. The S&P 500 and the Nasdaq were also lower. The CBOE Volatility Index, widely considered the best gauge of fear in the market, traded below 19.

The Dow, Nasdaq and the Russell 2000 have broken below their 200-day moving averages.

Among key S&P sectors, energy was lower, while utilities held small gains.

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Stocks took a sharp 2-percent nosedive in a post-election selloff Wednesday, with the Dow logging its biggest decline in nearly a year, prompted by concerns over the looming "fiscal cliff" and amid renewed worries over Europe's weak economy. 

"We believe that the underlying U.S. economic fundamentals remain favorable," wrote Gary Thayer, chief macro strategist at Wells Fargo Advisors. "The economy is growing and the uncertainty of the election is behind us. If Congress and the president can find some middle ground and compromise over tax hikes and spending cuts, the outlook for the economy would be better than the worst-case scenario of allowing all the tax hikes and spending cuts to be implemented as scheduled."

On the economic front, jobless claims fell 8,000 to a seasonally adjusted 355,000 in the previous week, according to the Labor Department. Economists had expected a reading of 370,000. The four-week moving average rose 3,250 to 370,500.

And the U.S. trade deficit narrowed in September to $41.55 billion as exports increased, according to the Commerce Department, suggesting the economy expanded more than previously believed in the third quarter. Analysts expected the gap to widen to $45.0 billion.

European shares gained after the Greek parliament passed further austerity measures by a narrow margin.

The European Central Bank left interest rates unchanged at a record low of 0.75 percent as expected. ECB President Mario Draghi said growth momentum in the euro zone was expected to remain weak.

"Economic activity in the euro area is expected to remain weak although it continues to be supported by our monetary policy stance and financial market confidence has visibly improved on the back of our decisions as regards Outright Monetary Transactions," said Draghi at a press conference, referring to the bank's bond buying program unveiled in September.

The government auctioned $16 billion in 30-year bonds at a high yield of 2.820 percent. The bid-to-cover was  2.77.