Stocks Snap 3-Day Rally Ahead of Fed Speech

Stocks closed near session lows Thursday, reversing three days of gains, as investors remained cautious ahead of Bernanke's Jackson Hole speech on Friday.

 

The Dow Jones Industrial Average fell 170.89 points, or 1.51 percent, to finish at 11,149.82. Bank of America and AmEx were the only gainers on the blue-chip index.

The S&P 500 slumped 18.33 points, or 1.56 percent, to close at 1,159.27. Technical traders are watching 1,155 on the S&P 500 as the next key support level.

The Nasdaq declined 48.06 points, or 1.95 percent, to end at 2,419.63.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped more than 10 percent to trade near 40.

All 10 S&P sectors finished in the red, led by energy.

Bank of America soared almost 10 percent after Berkshire Hathaway said it will invest $5 billion in the bank. BofA shares have been hammered more than 30 percent in 2011. During the height of the financial crisis, Berkshire Hathaway stepped in to bolster Goldman Sachs in a similar manner.

“There are two sides to this story—Despite BofA’s protest that they don’t need capital, they’re taking $5 billion in capital,” explained Brian Battle, vice president of trading at Performance Trust Capital Partners. “And they’re also getting the seal of approval from Warren Buffett…but in the end, the stamp of approval isn’t cheap and you know [Buffett] will benefit from it.”

Battle said Buffett’s move is a net positive for Bank of America and also implies a bottom for financials.

Rivals Citigroup and Morgan Stanley also finished higher.

European shares closed loweramid market chatter that a short selling ban may be inacted in Germany. Meanwhile, Fitch, Moody's and S&P all reaffirmed their AAA-rating on Germany, and maintained their "stable" outlook.

“Headlines are making stocks jump quite precipitously,” said Sal Arnuk, co-manager of trading at Themis Trading. “However, the real action will be watching Bernanke tomorrow.”

Investors are looking ahead to Fed Chairman Ben Bernanke's Jackson Hole speech on Friday,in hopes that he may announce some form of monetary policy to help support the U.S. economy.

Apple fell following news that Steve Jobs resigned as CEO Wednesday, saying he could no longer fulfill his duties and passed the reigns to Tim Cook. Tech firms were a likely focus for investors following the announcement.

Meanwhile, Jobs' resignation as CEO could give a boost to Google , Microsoft and Samsung as the rivals seek to capitalize on the change.

Gold rebounded after two days of sharp declinesas investors rushed back into the precious metal as a safe-haven play amid uncertainties over European markets.

Meanwhile, Citigroup cut its global growth forecasts for this year and 2012. The firm slashed its global GDP growth forecast for 2011 to 3.1 percent from 3.4 percent, and for 2012, to 3.2 percent from 3.7 percent.

Energy stocks declined amid worries over a global economic slowdown. BP , ExxonMobil and Chevron were all trading lower.

In other corporate news, AT&T said the FCC had requested more information about its acquisition of T-Mobile in relation to its commitment to expand high-speed wireless services to 97 percent of all Americans.

On the earnings front, Big Lots was flat after the retailer posted earnings that beat expectations and raised its full-year profit forecast.

Hormel also reported better-than-expected results and the maker of Spam also boosted its profit outlook for the year.

Volume was around average with the consolidated tape of the NYSE at 4.88 billion shares, while 1.21 billion shares changed hands on the floor.

Treasury prices held their gainsafter the government auctioned $29 billion in 7-year notes at a high yield of 1.58 percent and a bid-to-cover of 2.76.

On the economic front, new claims for unemployment benefits climbed more than expected last week, lifted by striking Verizon workers, according to the Labor Department. Jobless claims gained 5,000 to a seasonally adjusted 417,000 with Verizon workers on strike filing 8,500 claims last week. The strike against Verizon has since been resolved.

Economists had expected claims rising to 405,000 last week, according to a Reuters poll.

Meanwhile, UBS cut its 2011 and 2012 growth forecasts for Chinaamid the global slowdown.

—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC

Coming Up This Week:

FRIDAY: GDP, corproate profits, consumer sentiment, Bernanke speaks, short-sale bans expire; Earnings from Tiffany

More From CNBC.com: