By Anora Mahmudova, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks closed sharply lower on
Thursday as weak economic data from China prompted investors to
sell resource stocks and emerging-markets assets and seek safety in
bonds, gold, and high-dividend paying sectors.
The S&P 500(SPX) fell 16.40 points, or 0.9%, to 1,828.46,
breaking a two-day winning streak. Losses were led by financials
and materials sectors. Only telecoms, a sector whose stocks are
known for their dividend yields, ended higher. The benchmark index
is down 1.1% year-to-date.
The Dow Jones Industrial Average(DJI) fell to a five-week low,
shedding 175.99 points, or 1.1%, to 16,197.35. The blue-chip index
recorded its third straight session of losses.
The Nasdaq Composite (RIXF) lost 24.13 points, or 0.6% to
4,218.87, trimming gains it clocked in since the start of the year.
Read the recap of the stock market live blog.
Indexes suffered broad-based losses amid high trading volumes.
Thursday's total composite volume was the largest this year, as
more than 7.3 billion shares changed hands, according to
FactSet.
Investors appeared most worried about the surprise contraction
in China's manufacturing sector, which followed concerns over the
country's financial system. On Tuesday, China's central bank
announced it is injecting more liquidity into the system ahead of
the Lunar New Year holiday.
"China's banks have been having liquidity issues since last
summer, and what worries investors is contagion. If their problems
are severe, large banks in the U.S. and Europe will be affected,
triggering another crisis," said Quincy Krosby, market strategist
at Prudential Financial. "What is happening in the U.S. stock
market is consolidation and realization that the Fed is not going
to come to the rescue of the markets with liquidity anymore, as the
economy is growing again."
Gold closed at a two-month high and Treasurys rallied, sending
yields lower. The concern about China, alongside expectations the
Federal Reserve's monetary tightening would lead to higher U.S.
interest rates, hit emerging markets assets hard. The ETF tracking
the benchmark MSCI Emerging Markets index (EEM) closed at a
four-month low.
Among the day's other economic data, an early gauge of U.S.
manufacturing dipped in January from the prior month, but some of
the slowdown was due to cold weather, Markit reported Thursday. The
U.S. flash purchasing managers index slipped to 53.7 in January,
down from December's level of 55, which was an 11-month high. This
is the slowest improvement in conditions since October.
U.S. initial jobless claims rose slightly to 326,000. "Today's
jobless claims data had a worrying component -- continuing claims
stayed above 3 million. Investors are concerned about the labor
market and it is showing in today's selloffs," said Chris Gaffney,
senior market strategist at EverBank.
The leading economic index rose 0.1% in December, marking its
sixth gain in a row, the nonprofit Conference Board said
Thursday.
In the housing sector, sales of existing homes rose 1% in
December to a 4.98 million annual rate, while the median sale price
climbed 9.9% to $198,000.
In earnings news, McDonald's (MCD) reported nearly flat earnings
in the fourth quarter, as sales edged down slightly while expenses
rose. Earnings per share were $1.40, slightly ahead of consensus
expectations. Chief Executive Don Thompson called 2013 "a
challenging year." Shares in the fast-food chain ticked up
0.5%.
Shares in Netflix Inc. (NFLX) rallied 16.5% after the video
streaming company reported better-than-expected earnings late on
Wednesday.
Herbalife Ltd (HLF) shares slid 10% after U.S. Sen. Edward
Markey, a Democrat from Massachusetts, on Thursday called for an
investigation of the business practices of the company, which he
called "a possible pyramid scheme."
Santander Consumer USA Holdings (SC) climbed 5% on its debut,
after the auto lender sold 74 million shares at $24, raising $1.8
billion.
In after-hours market, shares in Starbucks Corp. (SBUX) rose
0.7% after the coffee-shop chain reported quarterly earnings above
analysts' expectations.
Microsoft Corp. (MSFT) shares rallied 3.7% in the after-hours
market, after the company reported better quarterly earnings and
revenue than analysts expected.
More must-reads from MarketWatch:
Interview: NYSE's Niederauer on Sprecher, Twitter and
maker-taker
Why the billionaires of Davos must tackle inequality
Live blog from Davos
Subscribe to WSJ: http://online.wsj.com?mod=djnwires