A rising dollar and disappointing corporate forecasts pushed stocks lower and Treasurys higher on Thursday.
Major stock indexes slid more than 1 percent, including the Dow Jones industrial average, which fell 120 points.
The dollar jumped to a three-month high against the euro, a sign of risk-aversion in the market. Investor confidence was further sapped as a forecast from FedEx Corp. fell short of expectations and
Citigroup Inc. sold stock at a steep discount as part of a plan to repay government loans.
More poor news came in on the economy as the government reported an unexpected rise in unemployment claims last week. The number of new jobless claims rose to 480,000 last week, up 7,000 from the previous week.
Stocks were coming under pressure from the stronger dollar, which can cut into profits of U.S. companies that do business abroad. The euro slumped after Standard & Poor's lowered its debt rating on Greece, the latest European country to have credit problems.
A pair of improved economic reports did little to shore up the market. The Conference Board's index of leading economic indicators rose in November for the eighth consecutive month, while the Philadelphia
Federal Reserve said manufacturing in its region rose.
John Merrill, chief investment officer of Tanglewood Wealth Management in Houston, said the rising dollar was overshadowing the improvement in the leading indicators numbers. He said the dollar was benefiting as traders concerned about rising debt levels in countries like Greece pulled out of the euro.
"There are a lot of shifting sands as people, not just federal reserve banks, look at the underpinnings of those currencies," he said.
In early afternoon trading, the Dow fell 120.09, or 1.2 percent, to 10,321.03. The broader Standard & Poor's 500 index fell 12.29, or 1.1 percent, to 1,096.89, and the Nasdaq composite index fell 27.46, or 1.2 percent, to 2,179.45.
Bond prices rose, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 3.49 percent from 3.60 percent late Wednesday.
The ICE Futures U.S. dollar index, which measures the greenback against a basket of foreign currencies, rose 1.2 percent.
Gold fell, while crude oil dropped 98 cents to $71.68 per barrel on the New York Mercantile Exchange.
In earnings news, FedEx provided a cautious forecast for its fiscal third quarter after reporting second-quarter results fell 30 percent from a year earlier. Shares of the shipping company fell $5.37, or 6 percent, to $84.58.
Credit card lender Discover Financial Services fell $1.51, or 9.2 percent, to $14.91 after reporting that its fiscal fourth-quarter profit fell 19 percent because of bad loans.
Citigroup fell 25 cents, or 7.4 percent, to $3.20 after the Treasury Department backed out of its plans to sell its 34 percent stake in the company.
The move came after investors responded tepidly to a massive stock offer by the New York-based bank, which is trying to repay $20 billion of the $45 billion in government support it received to weather the financial crisis.
Three stocks fell for every one that rose on the
New York Stock Exchange, where volume came to 890.1 million shares compared with 526.3 million shares traded at the same time Wednesday.
The Russell 2000 index of smaller companies fell 9.68, or 1.6 percent, to 601.53.
Britain's FTSE 100 fell 1.9 percent, Germany's DAX index lost 1 percent, and France's CAC-40 fell 1.2 percent. Japan's Nikkei stock average fell 0.9 percent.
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