Stocks tumbled Thursday after two disappointing economic reports renewed investors' concerns about the pace of the recovery.
The Labor Department said claims for unemployment benefits rose unexpectedly last week and the Federal Reserve of Philadelphia said manufacturing activity in the mid-Atlantic region has dropped during August.
"The Philly Fed number was just awful," said Randy Frederick, director of trading and derivatives at Charles Schwab. "The jobs number was bad, but not as far off the mark as the Philly number."
The pair of economic reports followed news that Intel Corp. was acquiring McAfee Inc. The deal, valued at $7.68 billion, was not enough to offset the weaker economic readings.
The reports are the latest in a months-long string of conflicting readings on the economy. The reports have shown the pace of a rebound is slowing and that companies are skittish about adding new workers. That has hurt stocks on some days in recent weeks. It has also stoked fears about the economy falling back into recession.
At the same time, corporate announcements, including earnings reports for the past six weeks, have largely showed companies are doing well. Mergers and acquisitions activity is often considered a positive sign because it means companies are willing to spend money to expand their businesses and are confident that prospects are improving.
According to preliminary calculations, the Dow fell 144.33, or 1.39 percent, to 10,271.21. The Standard & Poor's 500 index fell 18.53, or 1.69 percent, to 1,075.63, while the Nasdaq composite index fell 36.75, or 1.66 percent, to 2,178.95.
Volume has been particularly light in recent weeks, even by summer standards, meaning many investors are still uncertain about the direction of the economy.
Bond prices rose after the weak jobs and manufacturing reports. Investors often move into the safety of government bonds when there are signs the economy is not strong. The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.58 percent from 2.64 percent late Wednesday. Its yield is often used to help set interest rates on mortgages and other consumer loans.
Joe Benanti, managing director at Rosenblatt Securities, said low volume is probably adding to the sell-off.
It's "probably taking trading a little to an extreme, more than it should," Benanti said about the light trading volume.
If economic reports over the coming months continues to show the economy is growing, even slowly, it could alleviate fears of a second recession. That, in turn, could bring many investors back into the stock market.
The Labor Department said initial claims for unemployment benefits rose by 12,000 to 500,000 last week from an upwardly revised 488,000 a week earlier. Economists polled by Thomson Reuters forecast claims would fall slightly. It was the fourth rise in claims in the past five weeks and sent them to their highest level since November.
High unemployment is considered the biggest hurdle to a stronger recovery because people worried about jobs have scaled back their spending. Consumer spending accounts for the bulk of the country's economic activity.
The Philly Fed manufacturing survey was negative 7.7 for August after a reading of positive 5.1 last month. Economists were expecting the index to rise this month. Any reading above 0 indicates growth in the sector.
It was an especially sobering report because manufacturing activity early this year had shown the most consistent signs of growth coming out of the recession.
The report is "saying the manufacturing pop has run out of steam," said Jim Peters, CEO of Tactical Allocation Group. The lift the economy got from companies replenishing inventories is over and sales have not picked up enough to maintain those levels, Peters said.
A report on future economic activity also fell short of expectations. The Conference Board's index of leading economic indicators rose 0.1 percent last month after falling a month earlier. Economists had expected the index to rise 0.2 percent.
The index tries to predict economic activity over the next three to six months, so a rise in the index would indicate the economy is likely to grow during the second half of the year.
Chip maker Intel is buying computer-security software maker McAfee in an all-cash deal for $48 per share. McAfee shares surged $17.09, or 57.1 percent, to $47.02. Intel shares fell 61 cents, or 3.1 percent, to $18.98.
In other corporate news, Sears Holdings Corp. reported its second-quarter loss was cut in half as profit margins improved at its Kmart chain. But revenue at stores open at least a year, a key measure of strength in the retail industry, fell during the quarter. Sears shares dropped $5.36, of 8 percent, to $61.89.
Overseas, Britain's FTSE 100 fell 1.7 percent, Germany's DAX index fell 1.8 percent, and France's CAC-40 dropped 2.1 percent. Japan's Nikkei stock average rose 1.3 percent.