Stocks have shown a substantial turnaround over the course of morning trading on Thursday, with the major averages all pulling back firmly into negative territory after failing to sustain a strong upward move at the start of trading.

The initial upward move came as traders reacted to some better than expected employment data, with banking stocks helping to lead the way higher amid some optimism about the results of the government's financial stress tests.

Before the start of trading, the Labor Department released a report showing that initial jobless claims unexpectedly fell to 601,000 in the week ended May 2 from the previous week's revised figure of 635,000. Economists had expected jobless claims to show a modest increase.

However, the report also showed a continued increase in continuing claims, which rose to a new record high of 6.351 million in the week ended April 25 from the preceding week's revised level of 6.95 million.

Peter Boockvar, equity strategist at Miller Tabak, said, The differential between the two figures is evidence that while the pace of firing has stabilized, there still remains a lack of hiring.

Buying interest waned not long after the open, however, as traders showed some reluctance to continue buying stocks ahead of the release of the results of the stress tests after the close.

While the results of the stress tests are not likely to provide any major surprises as a result of leaks to the media, traders seem to be expressing some uncertainty about the reaction to the release of the official results.

The pullback by the markets came amid comments from Federal Reserve Chairman Ben Bernanke, who said that a regulatory structure more focused on the financial system as a whole, rather than individual institutions, is key to ensuring future financial stability.

Speaking at the Chicago Fed's annual Conference on Bank Structure and Competition, Bernanke said, A principal lesson of the crisis is that an approach to supervision that focuses narrowly on individual institutions can miss broader problems that are building up in the system.

Bernanke called for a more macroprudential approach to supervision, looking at the entire financial system as well as individual institutions. In theory, such an approach would mitigate the potential domino effect seen in the current financial crisis.

The major averages have seen some further downside in recent trading, falling to new lows for the session. The Dow is currently down 73.27 at 8,439.01, the Nasdaq is down 31.46 at 1,727.64 and the S&P 500 is down 6.31 at 913.22.

Sector News

The pullback by the markets is partly due to significant weakness that has emerged among technology stocks, with semiconductor stocks posting particularly steep losses. The Philadelphia Semiconductor Index is currently down 4.8 percent.

Micron Technology (MU) is helping to lead the semiconductor sector lower after Deutsche Bank downgraded its rating on the chip maker to Market Perform from Outperform. Shares of Micron are down 6.3 percent, pulling back further off the nine-month closing high set on Tuesday.

Most other technology stocks have also come under pressure, with some computer hardware and networking stocks posting notable losses. Among networking stocks, Cisco (CSCO) is down 3.5 percent despite reporting better than expected third quarter earnings.

Housing stocks have also shown a notable move to the downside over the course of the morning, dragging the Philadelphia Housing Index down 4.6 percent. The index is pulling back further off Monday's six-month closing high.

While weakness has also emerged in the real estate, airline, and steel sectors, health insurance stocks continue to post strong gains. The Morgan Stanley Healthcare Payor Index is currently up 7.5 percent, rising to its best intraday level in almost three months.

Some banking stocks also remain firmly positive, although they have pulled back well off their best levels of the day. Fifth Third Bancorp (FITB) is up 13.6 percent after Keefe Bruyette upgraded its rating on the bank to Outperform from Market Perform.

Stocks Driven By Analyst Comments

Despite the pullback by the markets, shares of Magna International (MGA) are seeing significant strength in morning trading, with the auto parts supplier currently posting a 3.3 percent gain. At it high for the session, Magna was at its best intraday level in almost seven months.

The gain by Magna comes after Deutsche Bank upgraded its rating on the company's stock to Hold from Sell. Deutsche Bank also upgraded fellow auto parts supplier TRW Automotive (TRW), saying that the risks to the companies have moderate.

Semiconductor equipment maker Verigy (VRGY) is also seeing some strength after Barclays upgraded its rating on the company's stock to Overweight from Equal-Weigh. Shares of Verigy are currently up 1.1 percent after reaching a nearly six-month intraday high.

On the other hand, shares of Morgan Stanley (MS) are currently down 3.6 percent after Keefe Bruyette downgraded its rating on the financial services provider to Market Perform from Outperform. Morgan Stanley ended the previous session at a seven-month closing high.

Other Markets

In overseas trading, most stock markets across the Asia-Pacific region extended their recent upward moves. Japan's benchmark Nikkei 225 Index jumped 4.6 percent, playing catch-up after the Japanese market was closed for the three previous sessions.

Meanwhile, the major European markets have turned mixed after seeing earlier strength. While the U.K.'s FTSE 100 Index remains up 1.4 percent, the French CAC 40 Index and the German DAX Index are down 0.2 percent and 0.2 percent, respectively.

In the bond market, treasuries are seeing considerable weakness, although they have moved off their lows in recent trading. Subsequently, the yield on the benchmark ten-year note is currently up 7.2 basis points at 3.224 percent after reaching a high of 3.274 percent.

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