Stocks fell for a second straight day on Thursday as investors were discouraged by economic data and focused on negative corporate news.
Concerns over European finances also clouded the outlook, as Spanish government bond yields rose after a disappointing debt auction and French yields rose on rumors, later denied, that the country's credit rating may be downgraded.
Apple shares, down more than 3 percent, also weighed on the market.
Qualcomm Inc led technology stocks lower a day after it warned of trouble meeting demand for some of its chips, while Stanley Black & Decker fell 7 percent to lead declines among industrials, the second-worst performing of the top 10 S&P 500 sectors.
The big declines came amid a strong beginning to earnings season, confirmed Thursday by better-than-expected reports from Bank of America Corp, Morgan Stanley, and eBay Inc.
According to the latest Thomson Reuters data, of the 105 S&P 500 components that have reported earnings to date, 81.9 percent Mhave beat analyst expectations.
Despite the positive beat rate in earnings, some important economic data points have been losing momentum and that has to call into question whether or not this is just a soft patch or something more dramatic, said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
You overlay that with Europe again dominating the headlines... it just has investors standing on the sidelines, she said.
Raising concerns about the economic outlook, new weekly U.S. claims for unemployment benefits were above expectations, factory activity in the Mid-Atlantic region slowed sharply and home resales dropped in March for a second straight month.
The Dow Jones industrial average fell 115.57 points, or 0.89 percent, to 12,917.18. The S&P 500 Index dropped 11.72 points, or 0.85 percent, to 1,373.42. The Nasdaq Composite lost 29.87 points, or 0.99 percent, to 3,001.58.
eBay Inc rose 12.7 percent to $40.42 after hitting a 6-year high earlier in the session. The online auctioneer's sales and profit grew more than expected and it raised its 2012 forecasts.
Bank of America Corp, the No. 2 U.S. bank, fell 2.2 percent to $8.72 after spending the morning higher and Morgan Stanley rose nearly 1 percent to $17.83 after they both reported better-than-expected results. The S&P financial sector fell 1 percent.
Biotechnology companies prevented a bigger slump on the Nasdaq, as Human Genome Sciences Inc soared 98 percent to $14.23, and Gilead Sciences Inc added 12.2 percent to $52.30.
Human Genome rejected an unsolicited $2.6 billion bid from long-time partner GlaxoSmithKline Plc.
Gilead's combination of experimental hepatitis C drugs, developed with Bristol-Myers Squibb Co, showed impressive results in a clinical trial.
The Nasdaq biotech index climbed 1.3 percent.
(Editing by Chizu Nomiyama)