Stocks dropped early Thursday as a rise in weekly jobless claims dampened hopes about a key employment report due Friday.
Stocks dropped early Thursday as a rise in weekly jobless claims dampened hopes about a key employment report due Friday.
A recovery in employment is seen as the biggest obstacle to a rebound in the economy and the unexpected increase in weekly unemployment claims provided another reminder that a recovery will be difficult.
The report reduced some expectations that the government's January jobs report on Friday will show that employers added workers in the first month of the year.
Concerns about employment and debt in European countries pounded stocks and drove up demand for safe haven holdings and pushed Treasury prices higher. The Dow Jones industrial average fell 120 points in early trading.
The Labor Department said unemployment claims rose 8,000 to a seasonally adjusted 480,000 last week. Economists had predicted claims would drop to 460,000. It was the fourth increase in the past five weeks. The number of lost jobs was the highest in two months and upended a sense that claims would resume a drop that occurred in the fall and early winter.
Friday's January report is expected to show employers added 5,000 jobs but that the unemployment rate rose to 10.1 percent from 10 percent.
The jobs figures overshadowed the Labor Department's finding that worker productivity rose more than expected in the final three months of 2009. Rising productivity can help boost company profits and but also can make it easier for employers to put off hiring.
Productivity rose by a seasonally adjusted 6.2 percent in the fourth quarter. Analysts had expected a 6 percent increase.
The drop in stocks also came as European markets tumbled on concerns about onerous debt levels in countries including Greece, Spain and Portugal.
The euro hit a seven-month low against the dollar. A stronger dollar can drag down stocks in the U.S. because it hurts companies that have large international operations.
There were bright spots. Many retailers reporting sales at stores open at least a year came in well ahead of expectations, a promising signs that some consumers are more willing to spend. Macy's Inc., for example, raised its profit forecast after sales rose and it discounted fewer items.
Manny Weintraub, president of Integre Advisors in New York, said the economy won't be able to recover and the stock market won't be able to extend its 11-month run if consumers don't eventually start ratcheting up spending. Improvements in unemployment would boost confidence of job seekers and could make those with jobs feel more at ease.
"That's the whole story. People feel if employment starts to improve you have a big multiplier effect," Weintraub said.
In the first half-hour of trading, the Dow fell 121.00, or 1.2 percent, to 10,149.55. The broader Standard & Poor's 500 index fell 15.99, or 1.5 percent, to 1,081.29, while the Nasdaq composite index slid 26.83, or 1.2 percent, to 2,164.08.
Stocks posted modest losses Wednesday, halting a two-day rally after the Institute for Supply Management, a trade group, said activity in services industries grew less than expected last month.
In other trading, bond prices rose, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 3.65 percent from 3.71 percent late Wednesday.
In afternoon trading, Britain's FTSE 100 fell 1.1 percent, Germany's DAX index dropped 1.1 percent, and France's CAC-40 fell 1.3 percent. Earlier, Japan's Nikkei stock average fell 0.5 percent.
