Stocks fell on Thursday as downbeat comments on the economy from tech company Cisco Systems Inc and retail chain Kohl's Corp cast doubt on the strength of the recovery.
Cisco's warnings about a still weak labor market and Kohl's saying it was unconvinced a recovery was at hand underscored the downbeat mood among investors already rattled by fears of sovereign debt defaults in the euro zone. Cisco shares fell 4.5 percent to $25.53 and Kohl's lost 5.8 percent to $53.81.
In addition, a report showed the number of U.S. workers filing for jobless benefits fell only slightly last week, which failed to back up sharply improving monthly payrolls data and suggested the unemployment rate will remain high.
Tom Alexander, head of Alexander Trading in Savannah, Georgia, said retail stocks are highly leveraged to a recovery and sensitive to suggestions of economic weakness.
That's going to be an area of the economy that's always brought into question if they start questioning the recovery, he said.
The Dow Jones industrial average <.DJI> dropped 113.96 points, or 1.05 percent, to 10,782.95. The Standard & Poor's 500 Index <.SPX> fell 14.23 points, or 1.21 percent, to 1,157.44. The Nasdaq Composite Index <.IXIC> lost 30.66 points, or 1.26 percent, to 2,394.36.
The S&P 500 gained 5.47 percent in the first three days of the week -- its biggest three-day run since July 2009. That was after last week's drop of 6.4 percent.
The S&P retail index <.RLX> fell 3 percent. Investors were cautious ahead of April retail sales data on Friday following last week's poor same-store sales data for the same month.
Home builders' shares also fell sharply on concerns over the sector's prospects now that a government tax credit for home buyers has expired. KB Home was the biggest decliner, falling 6.8 percent to $16.53. The Dow Jones index of home builders' shares <.DJUSHB> fell 4 percent.
Helping to limit the Dow's decline was U.S. aluminum producer Alcoa Inc , whose stock rose 2.7 percent to $12.80 on expectations the metal's price could rise if higher Chinese electricity prices cut the global supply of aluminum. Century Aluminum rose 5.1 percent to $12.69.
Tech stocks stayed in focus after German software company SAP AG agreed to buy smaller U.S. rival Sybase Inc for $5.8 billion. Sybase jumped 14.4 percent to $64.22, while the U.S.-listed shares of SAP fell 0.8 percent to $44.54.
This M&A activity is encouraging because it's being done on the merit of the deal, not simply because they have excess borrowing power, said Rob Stein, managing partner of Astor Asset Management in Chicago.
On the earnings front, Whole Foods Market Inc jumped 5.6 percent to $42.50, boosting consumer stocks after its quarterly profit topped estimates and it raised its full-year forecasts.
U.S.-listed shares of Sony Corp fell 5.1 percent to $31.53 after it forecast a full-year operating profit that was below expectations.
About 8.85 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's estimated daily average of 9.65 billion.
Declining stocks outnumbered advancing ones on the New York Stock Exchange by a ratio of about 2 to 1. On the Nasdaq, more than eight stocks fell for nearly every five that rose.
(Reporting by Edward Krudy; Editing by Jan Paschal)