Stocks fall amid fresh worries

The Dow dropped 226 points Thursday.

NEW YORK (AP) — Caution returned to Wall Street Thursday as unemployment claims reached a record high and new home sales hit a record low — two glaring signs that the economy is still in a deep slump.

The major stock indexes gave back all of Wednesday’s gains, and then some.

The Dow Jones industrial average sank 226 points, or 2.7 percent, while other indicators tumbled more than 3 percent. On Wednesday, stocks had soared on hopes that the government will take bad debt off banks’ books.

Investors took a step back Thursday after getting some harsh reminders that it might be a while before the nation’s 14-month-old recession ends, even if banks get more aid.

The Labor Department said the number of people continuing to receive unemployment benefits reached a seasonally adjusted 4.78 million week ending Jan. 17 — the highest level on records that go back to 1967. As a proportion of the work force, the total is the highest since August 1983.

Companies across a variety of industries have been slashing their payrolls by the thousands. Starbucks Corp., Eastman Kodak and Allstate Corp. became the latest major employers to announce big job cuts — 7,000 at Starbucks; 3,500 to 4,500 at Kodak; and 1,000 at Allstate.

“It seems like we’ve gotten through the financial crisis. Now we’re dealing with global synchronized recession,” said Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago.

And as more people lose their jobs, fewer of them are buying new homes. The Commerce Department said home sales plunged 14.7 percent to an adjusted annual rate of 331,000 in December — the lowest on records going back to 1963. Earlier this week, the National Association of Realtors said existing home sales posted an unexpected increase last month, but the sales were mostly of foreclosed homes.

“This all began as a housing crisis, and clearly, the housing crisis continues,” said Nathan Rowader, director of investments at Forward Management. “Bad housing numbers are not going to encourage anyone to be buying stock.”

Investors’ mood also darkened after companies from Eastman Kodak Co. to chip maker Qualcomm Inc. reported that profits tumbled the final three months of 2008.