Stocks fell on Thursday, with each of the major indexes dropping more than 1 percent, and the S&P fell through a key technical level, signaling further declines may be on the horizon.
A rating agency downgrade of Spain reignited euro zone debt concerns, and disappointing economic data from China and the United States heightened global growth worries.
The benchmark S&P index fell below its 50-day moving average, an indication of medium-term momentum for the market, for the first time since November.
Government data in the United States showed initial claims for state unemployment benefits increased 26,000 to a seasonally adjusted 397,000 and the trade deficit widened much more than expected in January to $46.3 billion.
Moody's one-notch downgrade of Spain, based on the costs of restructuring its banks, came with a warning that further cuts were possible. The agency downgraded Greece's debt earlier this week.
China swung to an unexpected trade deficit in February of $7.3 billion, its largest in seven years, but economists said the drop was likely temporary.
The Spain downgrade helped lift the dollar against the euro and pushed oil prices lower, even as Libyan leader Muammar Gaddafi carried counterattacks deeper into the insurgent heartland. Brent crude futures fell 1.2 percent to $114.54.
Overseas issues continue to play a role in U.S. markets. The situation in Europe isn't complete, the market continues to have concerns about sovereign credit, said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.
Markets have been hoping that China would lead the recovery, but when you put this (U.S.) data with slower growth out of China, the idea that everything looks normal is going away.
The Dow Jones industrial average <.DJI> dropped 199.57 points, or 1.63 percent, to 12,013.52. The Standard & Poor's 500 Index <.SPX> fell 22.56 points, or 1.71 percent, to 1,297.46. The Nasdaq Composite Index <.IXIC> lost 51.73 points, or 1.88 percent, to 2,699.99.
(Additional reporting by Ryan Vlastelica; Editing by Padraic Cassidy)