By Anora Mahmudova, MarketWatch

NEW YORK (MarketWatch) -- The U.S. stock market extended losses for the second day and finished lower Thursday, amid concerns that improving economic indicators might force the Fed to start raising rates sooner than anticipated.

The fourth-quarter GDP figures were revised up, while weekly jobless claims fell by more than expected to the lowest level in four months.

The S&P 500 (SPX) ended the day 3.52 points, or 0.2%, lower at 1,849.04, below a key support level of 1,850. Losses on the index were led by technology and financial sector stocks. The benchmark index erased gains for the year.

The Dow Jones Industrial Average (DJI) closed 4.76 points lower at 16,264.23.

The Nasdaq Composite (RIXF) finished the day 22.35 points, or 0.5%, lower at 4,151.23. The tech-heavy index is also negative for the year after a nearly 3% loss since the start of the week.

Follow MarketWatch's live blog of Thursday's stock-market action.

"Markets are showing a little fatigue and it probably goes back to tapering starting to have more impact," said Wasif Latif, vice president of equity investments at USAA Investments.

"Despite better than-expected GDP and jobless data it turned out to be bad day for the market, where the good news probably means the rates will go up higher, earlier," Latif said.

"The rise of rates and the end of QE may be being underestimated on how negative it might be for the market despite of improving economy," he added.

Read: 6 charts to decide when to panic about rate hikes

Quincy Krosby, market strategist at Prudential Financial, said that it is not unusual to see volatility at the end of the quarter.

"We are in the final days of the first quarter, which means portfolio managers are shifting and allocating money and perhaps causing a rotation from the sectors. If we begin to see the rotation out of cyclicals and into defensive sectors, that would mean investors are turning cautious," Krosby said.

Government data showed that the economy's growth in the fourth quarter was bumped up to 2.6%, mainly because of higher health-care spending, while weekly unemployment benefits fell to the lowest level in four months, offering further evidence that U.S. layoffs have slowed sharply and perhaps a hint that hiring is about to pick up.

Slumping for an eighth month, a guage of pending home sales fell 0.8% in February to the lowest level in more than two years, signaling that upcoming activity may slow, the National Association of Realtors reported.

Federal Reserve officials continued to hit the speaking circuit, expanding on last week's meeting. Cleveland Fed president Sandra Pianalto said "no single data point will determine how long the Federal Reserve can keep short-term interest rates low."

"We will be watching labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. It is a complicated world out there," Pianalto said.

The Federal Reserve seems to be doing a better job communicating with markets now than it did last summer, according to William Dudley, president of the central bank's New York branch, on Thursday.

Citigroup slumps after Fed rejects its capital plan

Citigroup (C) shares fell 5.4% after the bank failed to measure up to the Federal Reserve's stress-test requirements. Citi wasn't the only bank to be told late Wednesday that it needs to shore up its capital plans, but it was the biggest, and the news seemed to catch investors -- and the bank -- off guard.

Baxter International Inc. (BAX) shares rose 3.9% after the company said Thursday it plans to split into two entities, one focused on developing and marketing biopharmaceuticals and the other on medical products.

Lululemon(LULU) shares jumped 6.2% after posting a steady profit and higher revenue, but downside guidance.

GameStop (GME) shares fell 4% after the company reported quarterly results below consensus estimates.

Gold falls below $1,300; European stocks fall

In other markets, gold prices (GCJ4) fell below the key $1,300-an-ounce level, while oil (CLM4) settled higher.

European stocks struggled and moved lower, while Asia saw a mixed day, with the Nikkei 225 index jumping 1% and the Shanghai Composite Index closing down 0.8%.

More must-reads from MarketWatch:

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