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Worries over persistent job losses pound stocks

PERSISTENT job losses set off new worries about the U.S. economy and weighed on stocks yesterday.

The Dow Jones industrial average lost 125 points after continuing claims for unemployment benefits set their 16th straight weekly record. The number of newly laid-off workers seeking benefits fell last week but only after jumping a week earlier because of auto layoffs.

The report is causing the market to reconsider its optimism over early signs of recovery in the economy, which helped propel a two-month rally that lifted stocks off of 12-year lows in early March. On Wednesday, stocks gave up early gains and ended lower after the Federal Reserve said the economy was likely to shrink by more than expected this year.

Wall Street's concerns extended beyond jobs to fresh worries about the ability of governments to help grease economic activity with public spending. Credit ratings agency Standard & Poor's said Britain may have its rating cut because of rising debt levels, which would raise borrowing costs for the British government.

Even with governments pumping huge amounts of money into economies around the world there are still questions about how soon a rebound might take hold. In the U.S., home prices are still sliding and unemployment remains at a 25-year high.

Stephen Carl, a principal and head of equity trading at The Williams Capital Group in New York, said the market is sliding in part because it isn't getting a steady diet of good news to draw in more buyers.

"Without the constant stream of them it's kind of hard to build on," he said, referring to the upbeat economic reports the fueled the rally in March and April.

In midday trading, the Dow fell 126.96, or 1.5 percent, to 8,295.08. The Standard & Poor's 500 index fell 13.25, or 1.5 percent, to 890.22, and the Nasdaq composite index fell 30.83, or 1.8 percent, to 1,697.01.

Stocks fell Tuesday and Wednesday, but the S&P 500 index was still up 33.5 percent since tumbling to a 12-year low on March 9. The index was essentially flat for the year.

"We just had a 35 percent market increase from the bottom so a little bit of relief just makes sense," said Ron Weiner, president and chief executive of RDM Financial in Westport, Conn.

"People are starting to understand that all these taxes and stimulus are probably not going to lead to a great, roaring recovery and some of these stocks may have gotten ahead of themselves."

The latest jobs numbers weren't far from what Wall Street had been expecting but reinforced fears that the labor market will remain weak into 2010. Traders are searching for any signs that the rise in unemployment is losing steam because job losses not only damp consumer spending but also put loans on everything from homes to credit cards at risk.

The Labor Department said initial claims for jobless benefits fell moderately to 631,000, slightly worse than analysts' expectations of 630,000.

Even with the drop in weekly figures, the number of people continuing to claim unemployment insurance edged up to nearly 6.7 million, marking the 16th straight weekly record.

Meanwhile the market shrugged off a private research group's better-than-expected increase in an index of leading economic indicators.

The Conference Board's April index of leading economic indicators, designed to forecast economic activity in the next three to six months, rose 1 percent last month, the first improvement in seven months. Economists expected a 0.8 percent gain.

In other trading, the Russell 2000 index of smaller companies fell 9.39, or 1.9 percent, to 479.96.

Bond prices fell, pushing the yield on the 10-year Treasury note up to 3.30 percent from 3.19 percent late Wednesday.


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