As stocks take a dive, Dow drops 345

NEW YORK - The Dow Jones industrial average plummeted 345 points on Thursday on a confluence of poor news about the economy, although investors could not pin the drop on any overriding reason.

Reports showed that retail sales were weak in August, just as more Americans were filing for unemployment benefits.

Anxiety lingered about a global slowdown. Fears of another financial crisis refused to go away.

None of the news came as a shock to Wall Street.

So what pushed the Standard & Poor's 500-stock index down 3 percent, its worst daily performance in three months?

"Boy, it's hard to say," Douglas Peta, a market strategist at J&W Seligman & Co., said after the market's close. "All of us were scratching our heads. Why today?"

Explanations were proffered, but no consensus emerged.

Speculation ran rampant that some major hedge funds were rapidly selling off their assets; Atticus Capital, a $14 billion hedge fund based in New York, was forced to issue a statement denying that it was shutting down.

Two prominent regional banks, National City and First Horizon, had their credit ratings slashed by Standard & Poor's on concerns about credit and losses related to subprime mortgages. Bill Gross, the head of Pacific Investment Management, said banks were at risk of a coming "financial tsunami."

The Labor Department reported that the number of Americans who filed initial claims for unemployment benefits last week rose to 444,000, near a five-year high. And retailers said that sales were weak in August, as consumers opted to shop at discount stores. The reports suggested that profits at many American retailers would continue to fall even as gas prices come down.

By the end of the session, the S&P 500, the broadest measure of the American stock market, had sunk back into a bear market: It fell 38.15, nearly 3 percent, to close at 1,236.83. The Nasdaq composite index dropped 74.69, or 3.2 percent, to 2,259.04. The Dow closed down nearly 3 percent at 11,188.23.

The only certainty that arose from Thursday's painful session seemed to be that the stock market is in a fragile state, and it's likely to stay that way.

"If you don't like the moves in the market, just give it a half hour," Peta said. "That seems to have been the rule of the summer."

Wall Street is coming off a choppy few weeks, as lighter trading volume in August contributed to a fitful run of big gains followed by big losses. An index of market volatility spiked on Thursday by more than 12 percent to its highest level since July.

"It's like the markets can't really be happy one way or the other," Ryan Larson, a trader at Voyageur Asset Management, said. He noted that the recent declines in oil prices, which dropped $1.46 on Thursday to settle at $107.89 a barrel, had done little to reassure investors.

"When oil was $145, everyone screamed, 'inflation.' At $105, everyone is screaming, 'Where is the demand?'" he said. "The picture that is starting to develop is that people are worried that the global economic slowdown is beginning to pick up steam."

Energy stocks plummeted on the decline in oil, which soured investors' mood on refineries and commodity companies. Exxon Mobil shares traded down 2.4 percent, and shares of Chevron were off 3.5 percent.

Retailers suffered, too. Abercrombie & Fitch shares lost 6.8 percent, and shares of Target Corp. fell 2.2 percent.

"Lower oil prices were going to help the consumer stand up," Larson said. "It's not the case."

Investors will now turn their attention to labor data that will be released this morning by the Labor Department, which will report the unemployment rate for August and estimate how many Americans were laid off during the month.

Economists expect the economy to have shed another 70,000 jobs in August; a worse-than-expected showing would be an ominous sign for the economy's health for the rest of the year.

Other economic data released on Thursday was more positive. Productivity was revised up, to 4.3 percent last quarter, higher than economists had estimated.