Stocks dropped more than 1 percent on Thursday and the S&P 500 fell through a key technical level amid global economic worries, suggesting more losses may be on the way.

Nearly seven stocks fell for every one that rose on both the New York Stock Exchange and the Nasdaq, in an indicator of the depth of the negative sentiment driving the sell-off.

A ratings agency's downgrade of Spain reignited euro-zone debt concerns, and disappointing economic data from China and the United States heightened global growth worries.

The benchmark S&P 500 index fell below its 50-day moving average, an indication of medium-term momentum for the market, for the first time since November.

The market just needed a catalyst. It was so extended. And to me I see the China trade deficit as a catalyst, I see the Spain downgrade as a catalyst, said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

Analysts have been calling for a correction in the market after its big run up since early September. The S&P 500 is up roughly 25 percent since then.

Mendelsohn said he's eyeing 1,294.26 on the S&P 500 as critical support.

Once we take that out, I see 1,250 in my sights pretty easily, so I think this is the beginning of something severe, he said.

Energy shares represented the biggest drag on the S&P 500, as oil prices pulled back from recent highs.

The Dow Jones industrial average <.DJI> was down 167.18 points, or 1.37 percent, at 12,045.91. The Standard & Poor's 500 Index <.SPX> was down 17.98 points, or 1.36 percent, at 1,302.04. The Nasdaq Composite Index <.IXIC> was down 42.31 points, or 1.54 percent, at 2,709.41.

Brent oil futures prices declined, even as Libyan leader Muammar Gaddafi carried counterattacks deeper into the insurgent heartland. The turmoil has driven oil prices up sharply in recent weeks.

Adding to the negative tone, U.S. government data showed initial claims for state unemployment benefits increased 26,000 to a seasonally adjusted 397,000 and the trade deficit widened much more than expected in January to $46.3 billion.

Moody's one-notch downgrade of Spain, based on the costs of restructuring its banks, came with a warning that further cuts were possible. The agency downgraded Greece's debt earlier this week.

China swung to an unexpected trade deficit in February of $7.3 billion, its largest in seven years, but economists said the drop was likely temporary.

The CBOE Volatility Index or VIX <.VIX>, Wall Street's favorite gauge of investor fear, was up 4.15 percent at 21.06 in late morning trading.

(Reporting by Caroline Valetkevitch; Additional reporting by Charles Mikolajczak and Doris Frankel; Editing by Jan Paschal)

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