A September stock rally weakened on Thursday as investors were disappointed by a jump in unemployment claims and more signs of trouble for Europe's economy.
The market got off to a bad start after applications for unemployment benefits rose unexpectedly last week. European stocks also sank after following a lower reading on business activity in the 16 countries that use the euro and news that Ireland's economy shrank 1.2 percent in the second quarter.
The Dow Jones industrial average closed down 77 points, its second day of losses. The Standard & Poor's 500 index, the benchmark most often used by professional investors, fell below a key threshold watched by technical analysts. Gold hit another record as traders sought safe havens.
The slide raised doubts about whether a three-week rally that vaulted stocks higher in September would continue. The Dow is still up 6.5 percent for the month, but is 4.8 percent below its 2010 high reached on April 26. For the year, it's up 2.2 percent.
Traders were disappointed to see first-time unemployment claims rise last week, breaking a recent trend of declines. The Labor Department said claims jumped by 12,000 and are still at levels that signal employers are not significantly adding new jobs.
"It's all about jobs right now," said Jack Ablin, chief investment officer at Harris Private Bank. "When claims pick up, that's a worrisome sign."
Unemployment claims had fallen consistently in recent weeks, reducing worries that the economy might fall back into recession. Modest improvements in many economic reports have driven stocks sharply higher in September.
The Dow Jones industrial average rose 13 of the past 16 days, but broke a five-day winning streak on Wednesday. Some market watchers are starting to think the rally may have run its course.
"We've had a really good run that people didn't expect and now we're asking, 'Does the news support it?'" Nicholas Colas, chief market strategist at BNY ConvergEx. "The answer today was, 'No.'"
The Dow Jones industrial average fell 76.89, or 0.7 percent, to close at 10,662.42.
The Standard & Poor's 500 index fell 9.45, or 0.8 percent, to 1,124.83, falling back below a closely watched threshold of 1,131. That had been the high end of its recent trading range until Monday, when the index charged above that level and stayed there, something analysts see as a bullish sign. Prior to Monday, the S&P had only crossed above 1,131 one time since June 21.
The Nasdaq composite index fell 7.47, or 0.3 percent, to 2,327.08.
Falling stocks outpaced rising ones 2 to 1 on the New York Stock Exchange, where consolidated volume came to 3.9 billion shares.
Stocks erased some of their losses on news that home sales climbed back from 15-year lows in August and an index of future economic activity rose more than expected. Stocks turned lower in the last hour after trading mixed for much of the day.
The yield on the 10-year Treasury note, a widely used benchmark for consumer and business loans, was flat at 2.55 percent.
Gold gained $4.20 to settle a record $1,296.30 an ounce. Gold has hit a series of record highs over the past two weeks as investors seek safe stores of value as the dollar weakens and after the Federal Reserve said it was ready to push interest rates lower and encourage slightly more inflation. Investors seek out gold as a hedge against inflation and a weak dollar, and when other assets appear to be too risky.