Led by banks and industrial companies, stocks accelerated a late-session slide to finish trading sharply lower Thursday.
Goldman Sachs fell after regulators announced enforcement actions against a unit of the bank over previous mortgage and foreclosure practices. Caterpillar Inc. fell 2.7 percent, the most of the 30 stocks in the index.
According to preliminary calculations, the Dow Jones industrial average fell 119.96 points, or 1.03 percent, to 11,493.57. It rose as many as 103 points shortly after a key manufacturing report released at 10 a.m. showed evidence of growth in August. The decline follows four days of gains and before Friday's release of the government's unemployment report for August.
The market has traded mixed for much of the day. Retailers including Macy's and Costco rose after reporting strong sales last month — despite wild swings in the stock market and worries about the economy.
The Institute for Supply Management's index showed that manufacturing expanded slightly for the 25th straight month. Analysts had expected a contraction. The growth was still down from July.
Goldman Sachs Group Inc. fell 3 percent to $112.76. The bank agreed to stop controversial mortgage-related practices such as the "robo-signing" of documents in a settlement with a New York state banking regulator. The practices occurred at a subsidiary the bank sold earlier Thursday. Also Thursday, the Federal Reserve said it ordered Goldman to review how foreclosures were handled at the subsidiary, Litton Loan Servicing.
Other banks also fell. Citigroup Inc. lost 3 percent and PNC Financial Services Group Inc. fell 2.6 percent. Bank of America Corp., which is facing many lawsuits over its dealings in mortgage-backed securities, fell 2 percent.
The Standard & Poor's 500 index fell 14.47 points, or 1.19 percent, to 1,204.42.
SAIC Inc. fell 13 percent, the most in the S&P 500, after the technology company issued a full-year earnings forecast that was below analysts' expectations. The company, which provides engineering and technology services to the military and other agencies, cited tightening government budgets.
The Nasdaq composite index fell 33.42, or 1.30 percent, to 2,546.04.
All three indexes had their worst August since 2001 after fears of an economic slowdown in the U.S. and debt issues in Europe put investors on edge.
Trading volume was on pace to be the lowest this year. Many traders were on vacation. Low volume suggests that relatively few investors were driving the market's gains and losses.
Rob Lutts, president and chief investment officer of Cabot Money Management, said he expected volume to remain very light until early next week, when many traders return to work after Labor Day. "That's when we'll see what's really going on," Lutts said.
Retailers rose after several companies reported sales gains that beat analysts' estimates. August is an important month for back-to-school shopping, which can account for up to 25 percent of retailers' annual revenue. Macy's Inc. rose 3.6 percent; Costco Wholesale Corp. rose 2.2 percent.