Stocks ended down for a third straight day on Thursday as an unexpected rise in jobless claims and a sobering revenue outlook from Cisco underscored the hurdles to economic recovery.

Thursday's drop comes a day after all three major indexes posted their worst percentage declines in more than a month, erasing gains for the year in the aftermath of a gloomier outlook from the U.S. Federal Reserve.

Cisco Systems Inc fell 9.6 percent to $21.45 and was the top drag on both the Dow and Nasdaq a day after it forecast sales below consensus, prompting several analysts to downgrade the stock.

The number of U.S. workers filing new claims for unemployment benefits unexpectedly rose to nearly a six-month high, increasing ongoing fears about the weak labor market. It was the second straight week of increases.

Concerns that tech spending would weaken were underlined by comments from Cisco's influential Chief Executive John Chambers, who warned of unusual uncertainty about the economy.

The market is upset by all the uncertainty created by the forecast, and that's weighing on the whole sector, said Janna Sampson, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

Right now it isn't clear whether these issues are solely related to Cisco, or if they'll hit names across the sector.

Telecom stocks advanced, with the S&P telecom services sector <.GSPL> up 0.9 percent and Verizon Communications Inc , up 2.5 percent at $30.31, providing the biggest boost to the Dow. The sector is generally considered a defensive play.

The Dow Jones industrial average <.DJI> slipped 58.88 points, or 0.57 percent, to 10,319.95. The Standard & Poor's 500 Index <.SPX> dropped 5.86 points, or 0.54 percent, to 1,083.61. The Nasdaq Composite Index <.IXIC> tumbled 18.36 points, or 0.83 percent, to 2,190.27.


Semiconductor stocks added to the Nasdaq's losses after BMO Capital Markets downgraded the sector, along with stalwarts Intel Corp and Texas Instruments Inc , on concerns about rising inventories.

Texas Instruments shares lost 2.2 percent to $24.41, while one semiconductor index <.SOX> fell 1.3 percent.

The S&P 500 fell below its 50-day moving average of 1,088, breaking a key technical support level that could exacerbate the sell-off.

All of this -- Cisco, the jobless claims -- is feeding into the market's correct conclusion that the economy is getting worse, said Chip Hanlon, president of Delta Global Advisors in Huntington Beach, California.


After the closing bell, Nvidia Corp shares rose 6 percent to $9.50 in extended trading after the graphics chipmaker reported its second-quarter results and gave a third-quarter revenue outlook.

Nordstrom Inc fell 4.5 percent to $31.95 after the bell after the upscale retailer reported its second-quarter results and affirmed its 2010 profit outlook.

Kohl's Corp fell 2.7 percent to $46.50 after giving a weak profit outlook. The S&P Department Store sub-industry index <.GSPRETD> lost 1.7 percent.

On the upside, General Motors Co recorded its biggest quarterly profit in six years on Thursday, a day ahead of its expected filing for an initial public offering.

Volume was light, with only 7.6 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's estimated daily average of 9.65 billion.

Decliners outnumbered advancers on the New York Stock Exchange by a ratio of 17 to 13, while on the Nasdaq, about eight stocks fell for every five that rose.