Stocks fall further after disappointing report on manufacturing overshadows rise in home sales

Slide in manufacturing activity sends stocks lower

NEW YORK — Stocks began the fourth quarter on a down note Thursday, falling sharply amid more signs that the economy’s recovery will be slow and bumpy.

Major stock indicators fell more than 1 percent after disappointing reports on the manufacturing industry and the labor market overshadowed good news on housing and consumer spending. The Dow Jones industrial average fell 140 points. Bond prices rose as investors nervously sought a safer place for their money.

The Institute for Supply Management said its index of manufacturing activity in September slipped to 52.6 from 52.9 in August, well below analysts’ expectations of 54. It was the second month in a row the reading came in above 50, which indicates growth, after contracting for 18 months.

Earlier Thursday, the Labor Department said new claims for jobless benefits rose more than expected to 551,000, evidence that the labor market is still struggling and that jobs remain scarce. Economists polled by Thomson Reuters had predicted claims to rise to 535,000.

The increase came after three weeks of declines and a day before the Labor Department’s monthly report on employment. Economists expect that the unemployment rate rose to 9.8 percent in September from 9.7 percent in August.

Better reports on housing and consumer spending weren’t enough to stem the stock market’s losses.

Several economic reports this week have already raised doubts among investors about the strength of the recovery and whether this year’s powerful stock market rally should continue. The Dow Jones industrial average lost nearly 30 points Wednesday, as a disappointing report on Midwestern manufacturing contributed to the bearish tone.

Despite ending on a wobbly note in September, stocks still put in a stellar third quarter. Both the Dow Jones industrials and the Standard & Poor’s 500 index gained 15 percent. It was the Dow’s best three-month period since the fourth quarter of 1998.

Christian Bendixen, director of technical research at Bay Crest Partners LLC in New York, said recent economic numbers have reminded investors that a recovery in the economy will be difficult.

“For the first time in a while they’re coming in a little bit lower than expectations and I think that’s scaring a few investors,” he said.

In late morning trading, the Dow fell 138.91, or 1.4 percent, to 9,573.37. The Standard & Poor’s 500 index fell 18.11, or 1.7 percent, to 1,038.97, and the Nasdaq composite index dropped 45.71, or 2.2 percent, to 2,076.71.

The Russell 2000 index of smaller companies fell 12.76, or 2.1 percent, to 591.52.

Four stocks fell for every one that rose on the New York Stock Exchange, where volume came to 420.5 million shares compared with 429.8 million shares traded at the same point Wednesday.

Bond prices rose, a move to be expected given investors’ growing anxiety about the economy. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.23 percent from 3.31 percent late Wednesday.

Not all the economic news pushed investors to sell. The Commerce Department said consumer spending surged by the largest amount in nearly eight years in August, as personal income growth lags. Consumer spending rose 1.3 percent and incomes edged up 0.2 percent.

Even so, economists worry whether that rebound can be sustained with U.S. households facing rising unemployment and tight credit conditions.

Reports this week have raised investors’ doubts about the economic recovery and whether they should be continuing this year’s rally. The Dow lost nearly 30 points Wednesday, as a disappointing report on Midwestern manufacturing contributed to the bearish tone.

Thursday’s early corporate news had little impact on the market. Cisco Systems Inc. agreed to buy Tandberg ASA, a Norwegian maker of hardware for video conferences, for $3 billion, signaling a continued uptick in mergers-and-acquisitions activity. An increase in corporate dealmaking has boosted investors’ hopes for a recovery and sent stocks soaring as recently as Monday, but the downbeat reports this week on the economy are still dominating the market. Cisco slipped 25 cents to $23.29.

The dollar mostly rose against other major currencies, while gold prices fell.

Light, sweet crude fell 60 cents to $70.01 on the New York Mercantile Exchange.

Overseas markets fell, even as the International Monetary Fund said the global economy is recovering faster than expected, but warned it will be a sluggish rebound.

Japan’s Nikkei stock average fell 1.5 percent. In afternoon trading, Britain’s FTSE 100 fell 1 percent, Germany’s DAX index fell 1.4 percent, and France’s CAC-40 lost 1.3 percent.