U.S. stocks sank on Thursday as escalating fears of sovereign debt problems in Europe led investors to dump riskier assets.

Mining and materials companies' shares took a pounding. Worries over the debt struggles of euro-zone countries Greece, Portugal and Spain fueled a flight from stocks to the safe-haven dollar, which hurt commodity prices denominated in the greenback. Barrick Gold fell 5.5 percent to $33.93 and U.S. Steel lost 5.1 percent to $44.44.

There is significant global concern because of the tidal wave of money shipped around the world, said Fred Dickson, chief market strategist of D.A. Davidson & Co in Lake Oswego, Oregon.

Investors are focusing on government debt in Spain and Portugal, the latest euro-zone countries to rattle markets after Greece.

Economic data also weighed on investors. Weekly initial claims for state unemployment benefits rose unexpectedly, pointing to stubborn weakness in the U.S. labor market.

The specter of rising unemployment before Friday's nonfarm

payrolls report overshadowed better-than-expected factory orders as investors piled into safer assets. U.S. Treasury debt prices rallied.

The Dow Jones industrial average <.DJI> dropped 207.00 points, or 2.02 percent, to 10,063.55. The Standard & Poor's 500 Index <.SPX> fell 25.71 points, or 2.34 percent, to 1,071.57. The Nasdaq Composite Index <.IXIC> lost 51.33 points, or 2.34 percent, to 2,139.58.

Corporate earnings were mixed. Cisco Systems Inc shares rose 0.6 percent to $23.20 after the company reported

higher-than-expected revenue growth late on Wednesday as more customers resumed upgrading their networks to handle increasing wireless and Internet traffic.

In other results after Wednesday's closing bell, silicon maker MEMC Electronic Materials Inc posted a quarterly loss on lower sales. But the company said pricing pressures have moderated and product volume continued to increase. Its stock fell 11.9 percent to $12.01.

Weighing on the financial sector, MasterCard Inc tumbled 9.8 percent to $223.43 after it posted quarterly earnings that fell short of Wall Street's estimates. That contrasted with stronger-than-expected earnings from Visa Inc late Wednesday. Visa's shares rose 0.8 percent to $84.22.

An S&P index of financial stocks <.GSPF> fell 3 percent.

Many U.S. retailers reported January sales that beat Wall Street's estimates. Department store operator Macy's Inc's and teen retailer American Eagle Outfitters Inc raised earnings forecasts.

Macy's rose 2 percent to $16.56, while America Eagle fell 2.3 percent to $16.06. But Target Corp , the No. 2 U.S. discount retailer, posted disappointing sales and said it was prepared for a challenging environment in 2010. Its shares slid 3.4 percent to $48.87. An S&P retail index <.RLX> dropped 1.8 percent.

(Reporting by Edward Krudy; Editing by Jan Paschal)