May 20, 2010 at 1:17 PM CDT - Updated June 20 at 1:21 PM
By STEPHEN BERNARD AP Business Writer
NEW YORK (AP) - The stock market looked to extend its sharp slide Thursday after disappointing employment news added to investors' already bleak view of the world economy. Interest rates fell sharply in the Treasury market as investors once again sought the safety of U.S. government debt.
The Labor Department said new claims for unemployment benefits rose by 25,000 to 471,000, their largest amount in three months. That came as an unpleasant surprise to investors who were expecting a slight drop to 440,000. High unemployment remains one of the biggest obstacles to a sustained recovery in the U.S. The latest report snapped a streak of four straight weekly declines and again calls into question the strength of the job market.
Weekly claims have been stuck around 450,000 since January, unable to break closer to the 425,000 range that is considered a sign that employers are regularly hiring new workers.
The employment report increased investors' worries about the global economy. They have been selling heavily the past few weeks amid growing concerns that Europe's debt problems will halt the recovery in the region and hurt the rebound in the U.S.
Ahead of the opening bell, Dow Jones industrial average futures fell 135, or 1.3 percent, to 10,270. Standard&Poor's 500 index futures fell 17.80, or 1.6 percent, to 1,092.10, while Nasdaq 100 index futures dropped 32.75, or 1.8 percent, to 1,835.50.
The S&P 500 is nearly 10 percent off its high for the year set last month. Such a drop is considered by many analysts to be a "correction" in the market. No corrections have occurred since stocks hit a 12-year low in March 2009.
As investors pulled out of stocks and other risky investments like oil, they moved into safer investments such as U.S. Treasurys. Bond prices rose Thursday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.27 percent from 3.37 percent late Wednesday.
The euro fell again Thursday, and continues to hover near a four-year low. The currency, used by 16 countries in Europe, has become a key indicator of confidence in the continent's ability to contain growing debt problems in countries like Greece, Portugal and Spain. The euro fell to $1.2329, a day after touching a four-year low of $1.2146.
"There's a question out there now that potentially we could be talking about a collapse of the eurozone or countries breaking away from the euro," said Tim Quinlan, an economist at Wells Fargo&Co. As recently as four months ago, that wasn't even considered a possibility, Quinlan said.
Such a stark change in views has spooked investors, and the euro is now largely driving stock trading. Major European indexes gave up their morning gains and are now sharply lower after the euro retreated.
Greek workers are again in the streets protesting recently approved budget cuts that were necessary for the country to receive a bailout. Greece was able to repay debt that came due Wednesday only because it had access to a rescue package from the European Union and International Monetary Fund.
Ongoing concerns about Europe's economy and a disappointing report on the domestic housing market sent stocks lower Wednesday. A trade group said the number of people behind on repaying mortgages hit a record high in the first quarter, signaling foreclosures might climb again in the coming months. The housing market has been slow to recover from the recession.
The Dow dropped for the ninth time in the past 12 trading sessions. However, it pared most of its loss late in the day. It closed down 67 points after falling as much as 186.
Oil for June delivery fell $2.07 to $67.80 a barrel in electronic trading Thursday on the New York Mercantile Exchange.
Overseas, Britain's FTSE 100 fell 1.6 Germany's DAX index dropped 1.5 percent, and France's CAC-40 plummeted 1.9 percent.
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