Gloom Rules Wall Street as Equities Drop to Three-Month Lows

Stocks suffered sharp declines Thursday amid weak jobs data, European debt fears and some disappointing earnings outlooks. Jittery investors scrambled out of equities and commodities and back into safe havens such as Treasurys and the dollar ahead of Friday's key unemployment report.

The blue-chip Dow Jones Industrial Average ($INDU) fell 268 points, or 2.6%, to 10,002, while the broader S&P 500 ($INX) shed 34 points, or 3.1%, to close at 1,063. The tech-heavy Nasdaq Composite ($COMPX) declined 65 points, or 3%, to settle at 2,125.Both the Dow and S&P finished Thursday's session at three-month lows as the Chicago Board Options Exchange Volatility Index (VIX), also known as the investor fear gauge, jumped more than 19%

The selling pressure began overseas amid concerns that Portugal and Spain will struggle to fund their budget deficits, as well as fears that spending cuts in Greece could trigger labor strikes. That hurt the euro and helped the dollar continue its upward trend. The U.S. Dollar Index, which measures the greenback against a basket of major currencies, rallied 0.7%. That led to a sell-off in commodities priced in dollar -- gold fell $48 to $1,064 an ounce, while oil slid $3.88 to $73.10 a barrel -- and caused steep declines among shares in the materials and energy sectors.

"Markets turned sour from the start with stocks falling on continued reports of credit tightening in China, heightened concerns about sovereign risk in Spain and Portugal and labor troubles developing in Greece today," wrote John Stoltzfus, market strategist with Ticonderoga Securities.

All Eyes on the Employment Report

Further hurting stocks was an unexpected rise in jobless claims ahead of Friday's unemployment report. Initial jobless claims rose 8,000 to 480,000, the U.S. Labor Department said Thursday, as the job market registered its second straight disappointing weekly report. A Bloomberg News economists survey pegged expected jobless claims to fall to 455,000. Economists expect Friday's reading on U.S. unemployment to remain unchanged at 10%.

In a bright spot, retailers closed down a difficult fiscal year with slightly better-than-expected sales in January, which led some companies to boost their guidance for their upcoming year-end earnings reports. According to a tally of major retailers by Thomson Reuters, same-store sales rose 3.3%. Same-store sales, which typically measure sales at stores open more than a year, are considered to be a key retail metric.

Gainers were led by apparel stores, which were up 7.4% on a same-store basis. Discounters also did better than average, up 4.5%. But even the troubled department-store sector rose 2.5%, including the battered luxury retailers.

In another bit of good news, spot U.S. factory orders rose a better-than expected 1% in December, the Commerce Department announced Friday, providing more evidence that the manufacturing sector continues to heal.

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