Stocks fell in choppy trading on Thursday, putting the Dow within striking distance of fresh bear-market lows as investors fretted over the deteriorating economy and the fate of ailing financials.

Reports showing a record high in the number of workers continuing to claim jobless benefits in the first week of February and sharp contraction in factory activity in the Mid-Atlantic region depicted an economy in deep recession.

Bank of America and Citigroup plunged 7 percent and nearly 10 percent each on concerns about government plans to mop up bad assets from their books. The KBW banks index <.BKX> fell to its lowest since 1992.

I think that conviction is in the process of breaking, said Chip Hanlon, president of Delta Global Advisors, Inc in Huntington Beach, CA.

If that's the case, then I think you could look for a whoosh to the downside.

Losses were cushioned by energy shares that gained along with the price of oil, which jumped nearly 10 percent after government data showed a surprise fall in crude inventories last week. Chevron was the Dow's biggest boost, up 1.6 percent at $67.15.

The Dow Jones industrial average <.DJI> was off 39.34 points, or 0.52 percent, to 7,516.29. The Standard & Poor's 500 Index <.SPX> lost 2.41 points, or 0.31 percent, to 786.01. The Nasdaq Composite Index <.IXIC> was down 9.37 points, or 0.64 percent, at 1,458.60.

Since the start of the year, the Dow has fallen more than 14 percent, while the S&P 500 has lost more than 12 percent. The losses put the Dow on track to break the bear market closing lows hit on November 20.

Bargain-hunting helped put a floor under the market and earlier pushed the S&P 500 and Nasdaq up more than 1 percent.

A disappointing outlook from Hewlett-Packard Co pulled its stock down 9.7 percent to $30.76, making the world's largest PC maker a top drag on the Dow and contributing to a decline in other big-cap technology shares such as IBM , down 2.9 percent at $88.98.

(Editing by James Dalgleish)