Major stock averages fell on Thursday as traders were quick to shed positions ahead of a keenly awaited address by Federal Reserve Chairman Ben Bernanke on Friday.
A report showing job market weakness and concerns over a sharp drop in German stocks were the latest global economic concerns, fueling a wave of selling that picked up steam.
"They're selling ahead of Bernanke and being fairly cautious in their positioning," said Len Blum, managing partner of Westwood Capital LLC in New York.
New jobless claims rose last week, the government said, suggesting the job market is still struggling.
"It's just a skittish market," he said. "You had jobs this morning, which wasn't a great thing. It's not a very bearish sentiment around here... It's just everything -- a convergence of factors -- including the European situation and unemployment."
The Dow Jones industrial average declined 139.18 points, or 1.23%, at 11,181.53. The Standard & Poor's 500 Index fell 14.94 points, or 1.27%, at 1,162.66. The Nasdaq Composite Index was down 37.99 points, or 1.54%, at 2,429.70.
Traders were on tenterhooks before Bernanke's speech to central bankers in Jackson Hole, Wyoming. Many are waiting to see whether Bernanke will provide concrete action for further monetary stimulus or simply outline general guidelines for supporting the ailing economy.
The FTSEurofirst 300 index of top European shares fell 1.3% and Germany's DAX dropped as much as 5% and closed 1.7% down on talk Germany could enact a short-selling ban following the example of other European nations. A German Finance Ministry spokesman said the ministry was not planning a general short-selling ban.
Markets have been increasingly sensitive to developments in the euro zone, given the region's persistent sovereign debt crisis and concerns about European banks' stability.
"You are in an environment where fear supersedes all form of logic. A lot is being put on what's happening tomorrow. People are just very risk averse," said Randy Billhardt, head of institutional sales and trading at MTV & Co. in New York.
Stocks opened higher on Thursday after Bank of America said Warren Buffett's Berkshire Hathaway would be taking a USD 5 billion stake in the bank, whose shares had fallen to two-year lows earlier this week.
Apple Inc fell 1.4% to USD 370.90 a day after co-founder Steve Jobs resigned as chief executive, keeping the Nasdaq negative. Apple, the second-largest company in the S&P 500 by market capitalization, was the largest drag on the Nasdaq composite index.
Bank of America said it would sell Berkshire 50,000 shares of cumulative perpetual preferred stock with a 6% annual dividend. Bank of America, a Dow component, jumped 9.4% to USD 7.67, although it was still down for the month.
But the KBW banks index reversed its earlier gains by midday and was down 0.4%. The S&P financials index, which had been the only S&P sector in positive territory earlier in the session, also gave up gains and declined 0.8%. The index had earlier climbed as much as 4.7% to a session high.