Stocks slid on Thursday as a sharp drop in oil triggered a sell-off in an already fragile market that was staggered by Federal Reserve Chairman Ben Bernanke's downbeat comments a day earlier.

U.S. crude oil futures lost 4.4 percent and the dollar climbed sharply after the International Energy Agency (IEA) said it will release 60 million barrels of oil from strategic stockpiles to help the global economy.

The slide in the price oil was exacerbated by a climb of 1.1 percent in the U.S. Dollar Index <.DXY>, which tracks the greenback's performance against a basket of major currencies. In times of stress, the flight to safety that pushes the dollar higher makes oil more expensive, sapping demand for crude and other commodities priced in the U.S. currency.

Now you have so many countervailing forces here in terms of QE2 ending, Greece, this new approach in terms of commodities coming down -- and the market is commodity- and materials-weighted in here, said Paul Mendelsohn, chief investment strategist of Windham Financial Services in Charlotte, Vermont.

So you have these cross-currents and nobody knows where they want to be right now because you really don't know what is going to happen in the next week.

The news revived worries about the economy, putting the S&P 500 back on track toward a correction from the intraday high of 1,370.58 on May 2. Buyers had helped stocks rebound from three-month lows in recent days, but they have evaporated as selling pressure builds.

In the short term, oil is selling off on the news of the reserve release, but the main problem here is the economic slowdown, said James Dailey, portfolio manager of TEAM Asset Strategy Funds in Harrisburg, Pennsylvania.

The Dow Jones industrial average <.DJI> dropped 171.34 points, or 1.41 percent, to 11,938.33. The Standard & Poor's 500 Index <.SPX> lost 17.04 points, or 1.32 percent, to 1,270.10.

The Nasdaq Composite Index <.IXIC> fell 16.18 points, or 0.60 percent, to 2,653.01.

Despite the decline, though, the Nasdaq pared its losses just enough to edge back into positive territory for the year.

The S&P 500 has been able to bounce off its 200-day moving average, a key level of buying support, at 1262.57 -- falling as low as 1,262.87 for the session.

You did a swipe at the 200-day moving average, Mendelsohn said. Whether they can hold it or not remains to be seen. Once you take out these numbers, you are going to see a lot of stops under the market, and you will see it come down hard and fast if they take it out.

Energy stocks got hit after the IEA news. Chevron Corp fell 3.1 percent to $97.98 and Exxon Mobil Corp lost 2.9 percent to $77.53, ranking as the biggest drags on both the Dow and S&P 500. The PHLX Oil Service Index <.OSX> dropped 2.8 percent.

Reflecting the market's uncertainty, the CBOE Volatility Index <.VIX> or VIX, Wall Street's fear gauge, jumped 11.3 percent.

Greece's new finance minister sought to explain gaps in his austerity plan to EU and IMF officials on Thursday, with European leaders insisting on deep spending cuts and tax hikes if Athens wants to secure funds and avoid potential default.

New claims for unemployment benefits rose more than expected last week, suggesting little improvement in the labor market. Meanwhile, separate data showed sales of new homes fell in May, but inventories hit a record low and the median sales price rose slightly.

On Wednesday, the Fed's policy-makers cut the forecast for U.S. economic growth this year and next, with Bernanke offering no hint of further monetary support.

Further souring the mood, China's factory sector barely expanded in June even as price pressures eased, reflecting the impact of monetary policy tightening and sluggish global demand.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal )