Stocks tumble as worries rise

NEW YORK - Stocks tumbled Thursday after two disappointing economic reports renewed investors' concerns about the pace of the recovery.

The Dow Jones industrial average fell 144 points. All the major stock indexes fell more than 1 percent. Interest rates also fell sharply as investors moved back into the safety of Treasury bonds.

The Labor Department said initial claims for unemployment benefits rose unexpectedly last week, and the Federal Reserve of Philadelphia said manufacturing activity in the Mid-Atlantic region dropped during August.

"The Philly Fed number was just awful," said Randy Frederick, director of trading and derivatives at Charles Schwab Corp. "The jobs number was bad, but not as far off the mark as the Philly number."

The pair of economic reports followed news that Intel Corp. was acquiring McAfee Inc. The deal, valued at $7.68 billion, was not enough to offset the effect of the weak economic readings.

The reports are the latest in a months-long string of conflicting readings on the economy. The reports have shown that the pace of a rebound is slowing and that companies are skittish about adding workers. That has hurt stocks on some days in recent weeks. It has also raised fears about the economy's falling back into recession.

At the same time, corporate announcements, including earnings reports for the last six weeks, have largely shown that companies are doing well. A spate of acquisitions also has been announced. Mergers-and-acquisitions activity is often considered a positive sign because it means companies are willing to expand their businesses and are confident their prospects are improving.

The Dow fell 144.33, or 1.39 percent, to 10,271.21. The Standard & Poor's 500 index fell 18.53, or 1.69 percent, to 1,075.63, while the Nasdaq composite index fell 36.75, or 1.66 percent, to 2,178.95.

Volume has been particularly light in recent weeks, even by summer standards. Many traders are on vacation, but others are so uncertain about the direction of the economy that they are staying away from any big moves.

A report on future economic activity also fell short of expectations. The Conference Board's index of leading economic indicators rose 0.1 percent last month after falling a month earlier. Economists had expected the index to increase 0.2 percent.

Chip-maker Intel is buying McAfee, a maker of computer-security software, in an all-cash deal for $48 a share. McAfee shares surged $17.08, or 57.07 percent, to $47.01. Intel shares fell 69 cents, or 3.52 percent, to $18.90.

In other corporate news, Sears Holdings Corp. reported its second-quarter loss was cut in half as profit margins improved at its Kmart chain. But revenue at stores open at least a year, a key measure of strength in the retail industry, fell during the quarter. Sears shares dropped $6.22, or 9.24 percent, to $61.03.

Britain's FTSE 100 fell 1.7 percent, Germany's DAX index fell 1.8 percent, and France's CAC-40 dropped 2.1 percent. Japan's Nikkei stock average rose 1.3 percent.