Investors also contended with fresh worries about the financial sector and troubles with faltering mortgage debt. A slew of analysts have been downgrading banks and brokerages over the past few weeks, and late Wednesday, Citigroup analyst Prashant Bhatia lowered his third-quarter estimates for the investment banks Lehman Brothers Holdings Inc., Goldman Sachs Group Inc. and Morgan Stanley. He predicted Lehman will write down its assets by $2.9 billion, that Goldman Sachs will write down $1.8 billion, and that Morgan Stanley will write down $1.7 billion.
In the first hour of trading, the Dow Jones industrial average fell 72.46, or 0.63 percent, to 11,344.97. The Dow managed a moderate gain on Wednesday.
Broader stock indicators also declined Thursday. The Standard & Poor's 500 index fell 7.30, or 0.57 percent, to 1,267.24, and the Nasdaq composite index fell 16.65, or 0.70 percent, to 2,372.43.
Light, sweet crude oil prices extended their rebound, rising by $3.80 above $119.36 a barrel on the New York Mercantile Exchange.
Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.83 percent from 3.80 percent late Wednesday.
The dollar was lower against other major currencies, while gold prices rose.
A larger-than-expected drop last week in unemployment claims from newly laid-off workers failed to cheer Wall Street - especially as the four-week moving average for claims hit a nearly seven-year high. The Labor Department said claims fell by 13,000 to 432,000, but that the four-week average rose to 445,750.
A shaky job market has been slamming consumers who also face a tighter credit climate, rising costs and falling home prices. That is troubling to investors as consumer spending accounts for more than two-thirds of U.S. economic activity.
Investors again focused on the financials, which are getting hit as consumers fall behind on payments for mortgages and other debt. Citigroup's downcast note about the sector arrived after a volatile trading session Wednesday that saw worries about the possibility of a government bailout of Fannie Mae and Freddie Mac. Such a move could wipe out shareholder equity. Fannie fell 14 cents, or 3.2 percent, to $4.26, while Freddie fell 23 cents, or 7 percent, to $3.02.
Lehman Brothers is under particular scrutiny as well, after the Financial Times reported late Wednesday the investment bank tried to sell up to half of its shares to South Korean or Chinese investors earlier this month, but failed. Lehman shares fell $1, or 7.3 percent, to $12.73.
Overseas, Japan's Nikkei stock average fell 0.77 percent. In afternoon trading, Britain's FTSE 100 fell 0.20 percent, Germany's DAX index fell 1.16 percent, and France's CAC-40 declined 1.35 percent.