A slew of U.S. companies announced big profits Thursday, but investors spooked about the economy sold stocks anyway.
Investors shifted between buying and selling early, then stuck with selling after deciding that the strong earnings results weren't enough to make up for weak reports on jobs, housing and manufacturing.
The Dow Jones industrial average fell 68.65 points, or 0.5 percent, to close at 12,964.10. The broader Standard & Poor's 500 index dropped 8.22 points, or 0.6 percent, to 1,376.92.
Morgan Stanley rose 2.3 percent after it beat Wall Street's earnings and revenue estimates. UnitedHealth Group Inc. rose 2.4 percent after reporting higher profits. EBay, Southwest Airlines and Bank of America also beat forecasts.
Stock indexes fell after two relatively weak economic reports came out mid-morning. An index of regional manufacturing compiled by the Philadelphia branch of the Federal Reserve dropped sharply, and the National Association of Realtors said home sales fell 2.6 percent last month.
Earlier, the Labor Department said applications for unemployment benefits dipped 2,000 to 386,000. When the number is above 375,000, investors take it as a sign that hiring isn't strong enough to lower the unemployment rate.
"None of these (reports) were disastrous, but they're not as strong as we like to see," said Brian Lazorishak, a portfolio manager at Chase Investment Counsel in Charlottesville, Va.
In other trading, the Nasdaq composite fell 23.89 points, or 0.8 percent, to 3,007.56. Tech stocks could be in for some gains Friday following a strong earnings report after the closing bell Thursday from Microsoft. The software maker was up 2.8 percent in post-market trading after reporting a rise in sales of its Windows operating system.
Thursday's slide began from the start of trading. Investors were on edge after stocks fell a day earlier on worries that Spain could have trouble paying down its government debt. Adding to the jitters, the Bank of Spain had reported that bad loans at the country's banks had hit an 18-year high.
Before the opening bell Thursday, investors were nervously watching a sale of new government bonds from Spain. The auction met with high demand, and more bonds were sold than expected, but yields rose anyway.
The yield on Spanish 10-year notes rose to 5.87 percent, an increase of 0.06 percentage point.
European markets mostly fell. Spain's IBEX index fell 2.4 percent, Greece's main index 1.8 percent and France's CAC-40 fell 2 percent.
All but three of the 30 stocks in the Dow fell. Companies whose profits are more closely tied to the economic cycle fell the most. Alcoa, an aluminum maker, and DuPont, a chemicals company, lost more than 1 percent each.
Travelers, an insurer, rose 4.3 percent after a strong earnings report.
Eight of the ten industry sectors in the S&P 500 fell. The biggest losers were industrial and information technology stocks, down more than 1 percent each.
Uri Landesman, president of hedge fund Platinum Partners, said the good earnings are a bit of a sideshow. "There are bigger things at work here _ European fears, unemployment," he said. "People are more worried about what's going to happen than what's in the rearview mirror."
Stocks started drifting lower after noon. By mid-afternoon the Dow was down 136 points. The S&P 500 was hit by a drop in Apple.
The iPhone maker dropped 3.4 percent to $587. Some analysts think the stock's recent drop is just investors taking profits after a big run-up. Others think the fall reflects fear that that the company will sell fewer iPhones than expected.
In other corporate news, Tumi Holdings, a maker of high-end luggage, jumped 47 percent to $26.50 on its first day of trading.
The U.S.-listed shares of cell phone maker Nokia sank 3.8 percent after the Finnish company reported a loss for the first three months of the year and a 40 percent plunge in device sales. The company faces fierce competition from the iPhone and handset makers that use Google's Android software.
Human Genome Sciences doubled to $14.17 after the company spurned a takeover offer from GlaxoSmithKline of $13 per share, saying it undervalues the company. The biotech drug maker, which produces the lupus treatment Benlysta, said it would consider other options including a sale of the company.