U.S. stocks fell on Thursday on anemic economic data that overshadowed solid earnings results from banking bellwether JPMorgan Chase & Co .
An unexpected fall in factory activity and a third straight month of decline in producer prices raised concerns about deflation, cooling investors' enthusiasm about earnings season that had lifted the stock market off its recent lows in early July.
Dow component JPMorgan Chase, which reported earnings during premarket trade, fell 1.5 percent to $39.75, even as second-quarter profit topped estimates and its loan loss reserves dropped by $1.5 billion. Much of the gains came in areas that will not be a stable future source of income.
Jim Awad, managing director at Zephyr Management in New York, said the data confirmed that the recovery is slowing in pace, adding to fears that post stimulus, the economy is going to ratchet down in terms of its recovery.
The Dow Jones industrial average <.DJI> fell 101.79 points, or 0.98 percent, to 10,264.93. The Standard & Poor's 500 Index <.SPX> shed 10.85 points, or 0.99 percent, to 1,084.32. The Nasdaq Composite Index <.IXIC> lost 21.51 points, or 0.96 percent, to 2,228.33.
But in the options market, trades on exchange-traded funds that track the S&P 500 Index indicated a short-term bullish sentiment going into options expiration on Friday.
We continue to see potential pinning of SPX to the 1100 strike, said Scott Fullman, director of derivative investment strategy at WJB Capital Group.
The S&P Depository Trust , down 1 percent at $108.65, was seeing pinning potential between the $107 and $110 strikes, he said.
Pinning is when a stock or index closes at or around its corresponding at-the-money option strike.
At Wednesday's close, the S&P 500 broke a six-day winning streak while the Dow just eked out a gain and the Nasdaq rose modestly.
In Thursday's session, bank stocks erased their premarket gains and fell as investors fretted about JPMorgan's sober assessment of the economy, boding poorly for Citigroup Inc and Bank of America Corp which report earnings on Friday.
Citi shares were off 3.1 percent at $4.08 and Bank of America fell 3.6 percent to $15.11.
The passage of a broad banking reform bill also looked more likely at midday, with Senate leaders setting a series of final votes on the measure for 2 p.m.
The S&P Financial Index <.GSPF> slid 2 percent and contributed the most to the benchmark S&P 500's decline.
Advanced Micro Devices Inc and Google Inc will both report quarterly results after the closing bell, giving further insight into the technology sector after Intel Corp posted strong results earlier this week.
AMD slid 2 percent to $7.29, while Google slipped 0.6 percent to $488.62.
Amazon.com Inc fell 2.2 percent to $120.59 after Bank of America-Merrill Lynch downgraded the stock to neutral from buy, saying the online retailer's growth was slipping.
On the economic data front, the Philadelphia Federal Reserve Bank said factory activity in the U.S. Mid-Atlantic region fell unexpectedly, while the New York Federal Reserve Bank said New York manufacturing hit the lowest since December 2009.
Before the opening bell, the U.S. Labor Department said the overall U.S. Producer Price Index declined for a third straight month, increasing worries about slumping economic growth. In June, the overall PPI fell 0.5 percent, far more than dip of 0.1 percent expected by economists polled by Reuters.
In one positive economic report, U.S. jobless claims declined to a nearly two-year low in the latest week as seasonal layoffs eased at factories.
(Additional reporting by Edward Krudy; Editing by Jan Paschal)