By Anora Mahmudova, MarketWatch

NEW YORK (MarketWatch) -- U.S. stocks sold off on Thursday, as dumping of the previously high-flying small-caps as well as biotech and Internet stocks again spilled into the broader market.

The Nasdaq Composite (RIXF) at session lows was down 2.7%, its worst one-day percentage decline since June 2012. The Nasdaq Biotech index as well as iShares Nasdaq Biotechnoloyg ETFs dropped by 5.3%, triggering indiscriminate selling in the rest of the market.

The S&P 500 (SPX) fell 29 points, or 1.6%, to 1,842.79, falling below a key technical level. The Dow Jones Industrial Average (DJI) fell 199 points, or 1.2%, to 16,243.98.

The Russell 2000 index of small-cap stocks fell 2.6%. Panicky selling was evident from the jump in the volatility. The CBOE Vix index of implied volatility on the S&P 500 jumped 12% to over 15.

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"Wall Street ignored the fact that we had several positive data points since the last Fed meeting, yet rallied yesterday, perhaps interpreting the minutes more dovish than they previously thought," said Colin Cieszynski, senior market analyst at CMC Markets.

"The economy is improving, tapering is continuing apace, which means less liquidity for Wall Street. With valuations already fair, earnings growth may already be baked into the markets. We may see big swings during this earnings season, but overall market will probably stay flat in a tag of war between the bears and the bulls," he added.

Stocks were already lower after downbeat trade data from China rattled nerves, feeding concerns about slowing global demand. Before the opening bell, investors gave a tepid and short-lived welcome to a jobless claims report. New application for unemployment benefits dropped to the lowest level in almost seven years, suggesting that the U.S. labor market might be experiencing a spring revival.

Initial jobless claims sank by 32,000 to a seasonally adjusted 300,000 in the seven days ended April 5, the Labor Department said Thursday. That is the lowest level since May 2007, six months before the Great Recession began and a steeper drop than economists had expected.

Separately, the prices paid for imported goods increased 0.6% in March, the U.S. Labor Department said Thursday. The price of U.S.-made goods exported to other nations climbed 0.8% in March.

Retailers report mixed earnings, Ally slips on debut

Bed, Bath & Beyond Inc.(BBBY) shares fell 6% after the houseware retailer's forecast for the current quarter fell short of forecasts, and it posted a profit and revenue decline for the fiscal fourth quarter.

Family Dollar Stores Inc.(FDO) shares were down 2.2% after the discount-price retailer posted a fiscal second-quarter profit of 80 cents a share, which fell short of expectations. Revenue also fell.

Rite Aid Corp.(RAD) shares rose 11% after fourth-quarter adjusted earnings per share topped estimates.

Costco Wholesale Corp.(COST) was flat after March comparable sales rose 5%, beating forecasts.

Shares of Imperva Inc. (IMPV) fell 44%, after the network-security company cut its outlook.

Ally Financial Inc.(ALLY) made a disappointing market debut on Thursday, in what was the biggest U.S.-listed initial public offering of the year. Shares fell 4% to $23.99. The U.S. Treasury Department agreed to sell 95 million shares at $25 a piece, raising about $2.38 billion and reducing its stake in the company.

Farmland Partners Inc. (FPI) is scheduled to begin trading on the stock market on Thursday after pricing its initial public offering late Wednesday.

Gold jumps 1%; Asia stocks rise

Asian markets brushed aside ugly trade data, after China announced a plan to widen market access for overseas investors and allow for direct stock-trading between Hong Kong and Shanghai. European stocks largely gave up on gains.

Gold (GCM4) surged 1.1% and silver (SIK4) was up 2.4%. Oil (CLK4) was mildly lower, and the dollar (DXY) remained under pressure across major crosses.

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