Stocks drop on jobs, manufacturing data

NEW YORK - Stocks began the fourth quarter with their worst drop in three months after reports on the job market and manufacturing reawakened investors' pessimism about the economy.

The Dow Jones industrial average tumbled 203 points yesterday, while all the major indexes fell between 2 percent and 3 percent. The slide intensified in the final minutes of the day, signaling that traders were growing nervous ahead of the government's key September jobs report due before the opening bell today.

Bond prices jumped as investors sought a safer place for their money.

It was the sixth drop in seven days for stocks and another reminder of how fragile the market's seven-month rally has become. The economic reports overshadowed a more upbeat assessment on housing.

The latest worries erupted when the Labor Department said new claims for jobless benefits rose last week to 551,000. Economists had expecting claims would be essentially unchanged at 535,000, according to a survey by Thomson Reuters.

The mood on Wall Street darkened when the Institute for Supply Management said its index of manufacturing activity in September fell rather than rose as analysts had expected.

The employment figures rattled investors already concerned about unemployment. Economists predict that unemployment, which stands at a 26-year high of 9.7 percent, will rise to 9.8 percent for September. Most analysts expect the rate to top 10 percent by early next year. Economists are hoping, however, that the pace of job cuts will slow. Employers are expected to have cut 180,000 jobs in September compared with 216,000 in August.

The monthly report carries more weight with investors because it is less volatile than the weekly readings.

The Dow fell 203.00, or 2.09 percent, to 9,509.28.

Even with the drop, the Dow is still up 45.3 percent from a 12-year low of 6,547.05 on March 9.

The broader Standard & Poor's 500 index fell 27.23, or 2.58 percent, to 1,029.85, and the Nasdaq composite index dropped 64.94, or 3.06 percent, to 2,057.48.

The Russell 2000 index of smaller companies fell 20.53, or 3.40 percent, to 583.75.

The bad start to October came a day after stocks wrapped up a stellar third quarter. The Dow and the S&P 500 index gained 15 percent. It was the Dow's best quarter in nearly 11 years.

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

Light, sweet crude rose 21 cents to settle at $70.82 a barrel on the New York Mercantile Exchange.

Britain's FTSE 100 fell 1.7 percent, Germany's DAX index slid 2.1 percent, and France's CAC-40 lost 2 percent. Japan's Nikkei stock average fell 1.5 percent.