Futures extended their sharp losses Thursday after a gloomy forecast on global growth, continuing worries about the European debt crisis and following news that jobless claims rose more than expected last week.
Morgan Stanley warned the global economy was "dangerously close to a recession" and revised their 2011 global growth forecast down to 3.9 percent from 4.2 percent and 2012 forecast to 3.8 percent from 4.5 percent.
“While we had been calling for a 'BBB' recovery in developed markets all along, the path now looks even more bumpy, below-par and Brittle than previously thought," Morgan Stanley said in a note, adding that emerging markets were no longer immune.
In addition, stocks were also under pressure following reports that the U.S. federal and state regulators were intensifying their scrutiny of the U.S. arms of Europe's biggest banks, according to the Wall Street Journal.
European markets tumbledfollowing both announcements, led by financials. Shares of Deutsche Bank and Barclays fell sharply.
Gold surged near its record highs above $1,800 an ounce, helped by the unease over the lack of a solution to the European debt crisis and sluggish growth in the developed world. Meanwhile, oil prices tumbled sharply.
On the economic front, the number of people applying for unemployment benefits jumped 9,000 to a seasonally adjusted 408,000, the highest in four weeks, according to the Labor Department.
Meanwhile, the Consumer Price Index gained 0.5 percent in July, according to the Labor Department, amid higher gas prices last month. The core index, which excludes volatile food and energy, rose 0.2 percent.
Meanwhile, reports suggested the U.S. Justice Department was investigating the way in which Standard & Poor’s rated mortgage-backed securities ahead of the financial crisis in 2008.
According to the New York Times, the Justice Department investigation began before S&P downgraded the US economy from triple-A.
The newspaper also reported that it was “unclear” whether the Justice Department was investigating Fitch or Moody’s ratings agencies.
On the earnings front, Sears declined after the retailer posted a bigger-than-expected loss, due to tepid sales numbers for consumer electronics at its Sears department stores and Kmart chains.
NetApp plunged more than 10 percent after the data storage equipment maker said it expects a weak second quarter.
Investors will be closely watching Hewlett-Packard's earnings report this afternoon following rival Dell's disappointing sales outlook earlier this week, which fueled a selloff in the tech sector Wednesday.
Coca-Cola announced it will plans to invest $4 billion more in Chinaover the next three years starting from 2012.
Also on the economic front, the Philadelphia Federal Reserve Bank's business activity index for August, is expected to tick up to 3.7 from 3.2 last month, according to an analyst poll by Reuters, suggesting only modest activity growth. The report is expected at 10 am ET.
Existing home sales data for July is also expected at 10:00 am New York time with analysts forecasting a slight fall in sales to $4.7 million from $4.8 million the previous month.
Coming Up This Week:
THURSDAY: Existing home sales, Philadelphia Fed survey, leading indicators, money supply, Forest Labs shareholder mtg; Earnings from Hewlett-Packard and Gap
FRIDAY: Fed's Pianalto speaks, Google IPO anniversary