Stocks Closed Lower on Downbeat Economic News

Aug. 18, 2011— -- The Dow Jones industrial average closed 424.7 points lower to 10,985.50 on Thursday due to worries over a global economic slowdown.

In Europe, the major indexes at closing had fallen sharply, with London's FTSE off 4.5 percent and the German DAX down 5.8 percent.

While the Dow fell 3.72 percent, the S&P 500 fell 3.96 percent to 1,146.7 at the close.

Back in the U.S., the Labor Department reported 408,000 initial unemployment claims were filed in the week that ended Aug. 13, up 9,000 from a revised 399,000 from the previous week.

Doug Roberts, chief investment strategist of ChannelCapitalResearch.com, said that because the weekly claim figure is now above the key 400,000 level, it damages investors' confidence in the economic recovery. Adding to the concerns are federal spending cuts, which seem to rule out further fiscal stimulus.

The Federal Reserve of Philadelphia reported a decrease in factory activity in August. Roberts said all eyes will be on the Federal Reserve annual global central banking conference later this month in Jackson Hole, Wyo., for signs of any monetary stimulus.

The Consumer Price Index rose 0.5 percent in July, more than twice the expected 0.2 percent, leading to some fears of "stagflation," a combination of price inflation and stagnation in the economy.

Before these negative U.S. economic reports, bank stocks in the U.S. and in Europe were hit by a wave of selling after Sweden's financial regulator said lenders there should expect a worsening in Europe's debt crisis. That could lead to a freeze of lending between banks, cutting off loans to businesses.

Roberts said American investors are showing concerns the problems European banks face may not be contained to that continent. Investors are watching how Europe is managing its debt crisis, which has already led to bailouts for Greece, Ireland and Portugal.

Meanwhile, investment bank Morgan Stanley cut its global growth forecast for the year to 3.9 percent, down from a previous forecast of 4.2 percent. The bank cited an "insufficient" policy response to Europe's sovereign debt woes and the possibility of fiscal tightening that could make it harder for businesses to borrow.