Stocks dropped on Thursday on worries that the economic recovery was wilting after data showed growth in Mid-Atlantic factory activity braked and jobless claims rose unexpectedly.

Consumer discretionary shares were among the biggest drags, with home goods retailer Bed, Bath & Beyond Inc down 6.1 percent to $42.43 and the S&P retail index <.RLX> off 1.6 percent.

The Philadelphia Federal Reserve Bank said its June business activity index dropped to its slowest pace in 10 months, while the number of people filing for unemployment insurance unexpectedly increased as manufacturing, construction and education sectors shed workers.

Very disappointing. I don't know if this is temporary ... or if this means that the recovery is slowing and there is no v-shaped recovery, said Alan Lancz, president of Alan B. Lancz & Associates in Toledo, Ohio.

The Dow Jones industrial average <.DJI> dropped 68.32 points, or 0.66 percent, to 10,341.14. The Standard & Poor's 500 Index <.SPX> fell 6.90 points, or 0.62 percent, to 1,107.71. The Nasdaq Composite Index <.IXIC> lost 12.77 points, or 0.55 percent, to 2,293.16.

The S&P fell below its 200-day simple moving average after posting back-to-back closes above the average for the first time in nearly a month.

Homebuilder stocks lost ground after a brokerage initiated coverage, including sell ratings on five stocks, citing concerns that recent gains in non-farm employment was more of an illusion than real growth.

Builder KB Home fell 4.6 percent to $12.34, and the Morgan Stanley housing index <.HGX> dropped 2.7 percent.

On the upside, Apple Inc touched a lifetime high at $272.90 a day after the iPad maker said it sold more than 600,000 units of its new iPhone, a record for a single day of preorders. Shares later eased to $271.03, up 1.4 percent.

BP Plc's U.S. shares rose 0.4 percent to $32 and jumped near 7 percent in London after the company agreed to create a $20 billion fund to pay Gulf of Mexico oil spill claims.

(Additional reporting by Ryan Vlastelica and Chuck Mikolajczak; editing by Jeffrey Benkoe)