Stocks tumbled Thursday after a series of disappointing economic reports and despite an uptick in mergers and acquisitions activity. The day's downdraft wiped out the week's gains for the Dow and the S&P 500.
The Dow Jones Industrial Averageended down 144.3 points, or 1.4 percent, to 10,271.21 Thursday after falling sharply most of the day, accelerated by a weak report on manufacturing out of the Mid-Atlantic region. Volume was light.
Intel , General Electric and Alcoa led the blue-chip index lower.
The S&P 500fell 18.53 points, or 1.7 percent, to 1,075.63 and the Nasdaqfell 36.8 points, or 1.7 percent, to 2,178.95, breaking a three-day winning streak for both indexes. The CBOE Volatility Index, widely considered the best gauge of fear in the market, was up more than 7 percent, at above 26.
The key S&P 500 sectors were all lower, with financials, materials and industrials faring the worst.
Trading activity lately has been highly sensitive to economic news, and today is no exception, said Randy Frederick, director of trading and derivatives for Charles Schwab.
As a result, intraday volatility is very high, making it difficult for investors who can't watch the markets every minute, Frederick said.
"That’s why we see volumes down, and why we see such interest in fixed-income products," he said, adding that he doesn't see an end to this trend. "I absolutely think this volatility on an intraday basis will continue until we see leveling off in these economic indicators, which we haven't seen yet."
M&A activity was brisk this week, with the total volume of global deals reaching $84.81 billion, the highest level for the year, according to Dealogic. The deal activity was having an impact on the market, although it wasn't pushing prices higher across-the-board as some participants had hoped.
Intel shares were down more than 3 percent after the tech giant announced it will acquire software and computer security company McAfee. McAfee shares soared along with other software and computer security firms, including rival Symantec .
First Niagara Financial fell more than 5 percent following news that the bank plans to acquire NewAlliance Bancshares for $1.5 billion.
And BHP Billiton is working on getting regulators to approveits $39 billion hostile bid for Potash before the company approaches shareholders, according to Reuters. Potash's board already rejected the offer.
In earnings news, Sears was down signficantly after the retailer reported a wider-than-expected loss, largely due to a lackluster performance by its Kmart discount chain on weak food sales.
Staples fell after the office supplies retailer posted weaker-than-expected revenue and described a very slow route to economic recoveryin the coming months.
Williams-Sonoma also dropped despite the kitchenware and furnishings retailer posting a stong quarterly profitand boosting its full-year outlook.
Meanwhile, Petsmart jumped after the pet products retailer posted robust quarterly earnings and raised their 2010 guidance Wednesday afternoon.
Hewlett-Packard , Dell and Gap are expected to issue earnings after the bell Thursday.
Gap shares were lower after brokerage Standpoint Research initiated a buy on the retailer with a price target of $25.
In the day's economic news, The Philadelphia Federal Reserve's monthly survey of economic activity in the Mid-Atlantic region fell by 7.7 percent, the lowest level in more than a year,after rising 5.1 in July. The index was forecast to rise to 7.0.
Also, the Conference Board reported its index of leading economic indicators rose slightly, by 0.1 percent in July after falling 0.3 percent in June, which is lower than the previously reported 0.2 percent drop.
In other news on the economy, the Congressional Budget Office forecasted that the U.S. budget deficit will be slightly less in 2010than projected in March, at $1.342 trillion. The deficit for 2011, however, will be modestly higher than the March estimate at $1.066 trillion, according to Reuters.
And first-time claims for jobless benefits rose by 12,000 to 500,000, the highest level in nine months,for the week ended Aug. 14, the Labor Department reported. The surprise jump exceeded the 480,000 weekly total forecasted by economists. Claims for the prior week were revised up to 488,000 from the previously reported 484,000.
The news was disheartening to investors who had hoped to see signs of job growth in the weekly figures.
"Companies are not using cash to add to payrolls, and eventually this will be the primary reason why we may return to recessionary times," said Todd Schoenberger, managing director at LandColt Trading. "Bonds and cash seem to be the most logical place to be for the immediate future."
Meanwhile, St. Louis Federal Reserve President James Bullard said the Fed may need to ramp up its purchases of U.S. Treasury debt if price levels in the economy continue to show signs of softening.
"Should economic developments suggest increased disinflation risk, purchases of Treasury securities in excess of those required to keep the size of the balance sheet constant may be warranted," he said in prepared remarks.
Gold hit a seven-week high, ending up 0.33 percent to $1,233.8 an ounce. Meanwhile, oil prices ended down below $75 a barrel.
Oil giants ExxonMobil , Chevron and ConocoPhillips fell more than 1 percent each.
SanDisk shares sank after it announced plans to sell at least $1 billion in convertible notes.
AIG fell following news it is reportedly considering a bond sale before the end of the year, which would be the insurer's first debt offering in two years, according to the Wall Street Journal.
And General Motorsfiled for an initial public offering of stock Wednesday, as expected.
Volume on the New York Stock Exchange was light, with just over 1 billion shares changing hands. Decliners led advancers 5 to 1.
On The Calendar:
THURSDAY: Earnings after the bell from HP, Dell, Gap and Intuit
FRIDAY: No major events scheduled
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