Stocks Tumble, Derailing Rally

Jobless claims rose to their highest level in six years, while AIG reported another $11.6 billion in investment losses

The stock market's seesaw ride continued Thursday. Major indexes gave up nearly all of the week's gains amid more worries about the economy and the financial sector, sparked by a rise in jobless claims and an $11.6 billion hit to the balance sheet of insurance giant American International Group (AIG).

On Thursday, the Dow Jones industrial average fell 224.64 points, or 1.93%, to 11,431.43. The broader S&P 500 index lost 23.13 points, or 1.79%, to 1,266.06. The tech-heavy Nasdaq composite index fell 22.64 points, or 0.95%, to 2,355.73.

Despite a 3.2% rally on Tuesday and Wednesday, Thursday's decline puts the S&P 500 at nearly the same level it started the week. On the New York Stock Exchange, 24 stocks fell for every 7 in positive territory. On the Nasdaq, the ratio was 18 to 10 negative.

AIG share's 18% plunge on Thursday made it the biggest loser in both the Dow and S&P500 indexes. AIG saw $11.6 billion in losses and write-downs mostly related to AIG's mortgage exposure. The insurer posted a loss of $2.06 per share, vs. earnings of $1.64 a year ago.

U.S. jobless claims rose 7,000 to 455,000 last week, the highest level since 2002. However, some of the increase may be due to an emergency unemployment program. "Weak labor market data are adding to concerns over the economy's health over the rest of the year," Action Economics says.

Also Thursday, Wal-Mart Stores (WMT) reported a 3% increase in U.S. same-store sales, excluding gas, in July. The world's largest retailer said U.S. consumers are spending more cautiously with the end of federal government stimulus checks. It expects August same-store sales to rise 1% to 2% excluding fuel. Shares fell 6.25%.

A drop in oil prices had lifted stocks in recent days, but oil bounced back on Thursday. On the NYMEX, crude oil for September delivery rose $1.29 to $119.87 per barrel.

In other economic news Thursday, pending home sales rose 5.3% from May to June, the highest reading for the National Association of Realtors' Pending Home Sales index since last October. Contract signings were still off 12.3% from a year ago, however.

Among stocks in the news, Citigroup (C) reached a settlement with federal and state regulators regarding auction-rate securities Thursday. It will buy back more than $7 billion of the troubled securities and pay $100 million in fines. Citi shares fell 6.2%.

American Express (AXP) shares dropped 4.2% after Moody's placed the company's long-term debt rating under review for a possible downgrade.

J.C. Penney (JCP) raised its second quarter earnings guidance due to better sales of promotional merchandise and cost-cutting measures. The chain saw same-store sales fall 6.5% in July, and total sales dropped 4.9%.

Target Corp. (TGT) posted a 1.2% drop in July same-store sales. Total sales rose 4.7%.

Costco Wholesale Corp. (COST) posted a 10% increase in July same-store sales. Total sales were 14% higher.

Sunoco (SUN) reported better-than-expected earnings of 70 cents per share, vs. $4.20 a year ago. Retail gas and chemical profit margins were squeezed, even as revenue rose 40%.

BJ's Wholesale Club (BJ) reported a 17% jump in same-store sales in July -- with gasoline sales contributing 9.7% of the increase. Total sales were up 19%.

Abercrombie & Fitch Co. (ANF) posted a 7% drop in same-store sales in July, while total sales rose 2%.

Avis Budget Group (CAR) reported better-than-expected earnings of 15 cents per share, vs. 22 cents a year ago. Total revenue grew 4%.

Fluor Corp. (FLR) signed a $1.2 billion contract with Valero Energy Corp. (VLO) to provide services for projects at Valero's Louisiana and Texas refineries.

Sara Lee Corp. (SLE) posted a loss of 98 cents per share, vs. earnings of 16 cents a year ago. A non-cash impairment charge offset a 10.3% rise in sales.

Major European indexes were mixed Thursday. In London, the FTSE 100 index fell 0.16% to 5,477.50. In Paris, the CAC 40 index added 0.2% to 4,457.43. Germany’s DAX index edged down 0.27% to 6,543.49.

In Japan, the Nikkei 225 index fell 0.98% to 13,124.99. In Hong Kong, the Hang Seng Index gained 0.7% to 22,104.20.

Treasury market

Treasury prices rose Thursday. The 30-year bonds moved up 2-06/32 to 97-04/32 for a yield of 4.55%. The 10-year Treasury rose 1-05/32 to 100-20/32 for a yield of 3.92%; and the 2-year note was up 09/32 to 100-20/32 for a yield of 2.42%.

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