Stocks fell in choppy trading on Thursday as the latest signs of labor market weakness and worries over the fate of major banks cut off a round of bargain-hunting and drove bank stocks to a 17-year low.

The Dow industrials fell to within striking distance of fresh bear market lows.

The U.S. economy, stuck deep in recession, was hit by reports that showed the number of workers continuing to claim jobless benefits jumped to a record high in the first week of February and factory activity in the Mid-Atlantic region contracted sharply.

The market is focusing right now in the financials and the stimulus and bailout packages, said Rob Stein, managing partner at Astor Asset Management in Chicago.

The market understands the position the banks are in. They might actually be insolvent but there is some value to their importance to the economy and what the Fed does from a bailout standpoint. Their price is reflecting that.

Bank of America and Citigroup plunged more than 12 percent each on concerns about government plans to mop up bad assets from their books. The KBW banks index <.BKX> fell to its lowest level since 1992.

The Dow Jones industrial average <.DJI> fell 47.07 points, or 0.62 percent, to 7,508.56. The Standard & Poor's 500 Index <.SPX> shed 3.71 points, or 0.47 percent, to 784.71. The Nasdaq Composite Index <.IXIC> declined 13.34 points, or 0.91 percent, to 1,454.63.

Earlier, bargain-hunting had helped support the market and the S&P 500 and Nasdaq had risen more than 1 percent.

A disappointing outlook from Hewlett-Packard Co pulled its stock down 8.3 percent to $31.25, making the world's largest PC maker a top drag on the Dow and contributing to a decline in other big-cap technology shares like IBM , down 2.9 percent.

On Nasdaq, iPod maker Apple declined 4 percent to $90.61.

On the upside, energy shares rose after data showed crude stockpiles fell unexpectedly last week and U.S. crude futures jumped 7 percent. Chevron , up more than 1 percent to $66.81, was the top gainer on the Dow industrials.

Another bright spot was Sprint Nextel , up about 27 percent to $3.44, as the No. 3 U.S. mobile company posted a loss that was smaller than feared, despite shedding 1.3 million subscribers. The S&P telecom services index <.GSPL> gained 1.5 percent.

(Editing by Leslie Adler)