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Microsoft, Banks Drag Down Stocks

Stocks retreated Thursday as Microsoft layoffs and bank worries overshadowed hope for economic stimulus.

The Dow Jones Industrial Averagelost 105.30, or 1.3 percent, to close at 8122.80, giving back some of Wednesday's 3.5-percent gain. The S&P 500and Nasdaq also declined.

Hope for the President Obama's economic stimulus provided a brief reprieve as the Dow pared its loss, which was over 200 earlier, down to about 50 in afternoon trading.

"The president is working throughout the day, every day to ensure that a rescue plan and financial stability package are implemented quickly," White House spokesman Robert Gibbs said Thursday.

But, it’s been a tumultuous month so far for the major U.S. indexes—the Dow has lost nearly 10 percent in January alone — so you know the drill: The market giveth and the market taketh away.

Microsoft shed 12 percent to close at $17.11, its lowest close since 1998, after the software giant missed Wall Street's earnings target and said it would cut up to 5,000 jobs. The company also curtailed its forecasts for the rest of its fiscal year.

Microsoft caught the market off-guard, releasing the earnings before the bell, instead of after the bell as scheduled.

"Microsoft pulled the rug out from under us," Joe Saluzzi, co-manager of trading at Themis Trading, told Reuters. "Wall Street hates surprises — don't surprise us like that."

Citigroup dropped 15 percent to close at $3.11, locking its grip on the bottom spot on the Dow, after the company late Wednesday named former Richard Parsons as its chairman. Parsons is the former CEO of Time Warner.

A quick burst of enthusiasm for Bank of America, generated by news that CEO Ken Lewis snapped up more stock, lost steam and shares tumbled 15 percent to $5.71, putting it at the second lowest spot on the Dow, just above Citi.

Merrill's John Thain resigned from the newly-merged company after a meeting with Lewis. Bigger-than-expected losses from Merrill have been at the heart of Bank of America's recent pain that led to its first quarterly loss in 17 years.

But the news of his expected resignation was quickly eclipsed by a well-timed leak of how much he spent on a pricey redesign of his office last year and what he spent it on, including a $1,400 on a garbage can!

Traders appearing on CNBC said be prepared for more of these $6,000 shower curtains and $1,400 cans as we crunch the Wall Street culture kicking and screaming into the commercial-banking culture.

One word: Toga!

JPMorgan Chase kept its head above the fray, climbing 2.1 percent after CEO Jamie Dimon late Wednesday announced plans to buy more stock in the company.

A slew of regional banks reported this morning, missing estimates with huge losses. Among them were Fifth Third and SunTrust , which saw their shares tumble 29 percent and 11 percent, respectively.

Economic reports out before the bell just added to the malaise: Housing starts dropped 15.5 percentto a record annual pace of 589,000 units in December; analysts had expected a less-severe drop to a rate of 610,000 units.

Initial jobless claims jumped by 62,000 last week to 589,000. Analysts had expected just 540,000 claims.

Also hanging over the market's head was the delay of a full-Senate vote on Tim Geithner as Treasury Secretary until next week, leaving a key chair in Obama's economic huddles empty.

General Electric shares ticked higher amid heavy options activity surrounding the stock as investors worry that GE, parent of CNBC, may cut its dividend when it reports earnings tomorrow morning and that, even if it doesn't, it may not be able to hold on to its triple-A credit rating.

Apple shares jumped after the company beat earnings expectations amid strong iPod and Mac sales during the holiday quarter.

Palm shares skidded amid the prospect of a legal battle with Appleover its Palm Pre that dazzled the critics at the Consumer Electronics Show this year.

But it wasn't all fun and war in tech land: eBay tumbled 12 percent after the Internet auctioneer reported its profit fell 31 percent and issued a disappointing forecastfor the current quarter.

American depositary shares of Nokia tumbled more than 10 percent after the Finnish handset maker reported a 69-percent drop in earnings and issued a tepid outlook for the year ahead.

This comes a day after Intel announced plans to shut sites in Asia and reduce its presence in the U.S. The move could affect as many as 6,000 jobs, but Intel said not all of the 6,000 jobs would be lost. Intel shares shed 3.3 percent.

UnitedHealth jumped 8.5 percent after the insurer reported its profit dropped 40 percent but met analysts' target.

Aflac shares tumbled 36 percent after Morgan Stanley raised a flag of caution on the company's holdings of European hybrid securities.

Still to Come:

THURSDAY: Earnings from AMD, Capital One after the bell
FRIDAY: Natural-gas inventories; Earnings from GE, Harley-Davidson and Xerox

ALL WEEK: Detroit Auto Show (Jan. 11-25)

Send comments to cindy.perman@nbcuni.com.