US STOCKS-Wall St extends recent slide, down 2 pct

* Initial jobless claims edge down

* S&P in correction territory, off 10 pct since May

* Dow down 2.3 pct, S&P off 2.4 pct, Nasdaq off 2.4 pct

* For up-to-the-minute market news see [STXNEWS/US]
(Updates to midday)

By Caroline Valetkevitch

NEW YORK, Aug 4 (Reuters) - Investors fled stocks on
Thursday, putting the S&P 500 into correction territory, on
escalating worries about the U.S. economy and Europe.

All three indexes were down 2 percent, falling more than 3
percent each at one point, and declining stocks were beating
advancers on the New York Stock Exchange by 11 to 1.

"This morning, the dam broke. Capitulation sell-off. All
asset classes, elevated volume, indiscriminate," said Peter
Kenny, managing director at Knight Capital in Jersey City, New
Jersey.

Analysts predicted further losses ahead, given the strong
degree of pessimism in the market.

The day's drop follows a string of market declines
following concerns about the outcome of talks to cut budget
deficits in Washington, increasing evidence of U.S. economic
weakness and a spreading debt crisis in Europe.

Losses were strong across the board. Among stocks hitting
new 52-week lows were Bank of America (BAC.N), down 4 percent
at $9.16, Citigroup (C.N), down 3.2 percent at $36.05, and
Hewlett-Packard (HPQ.N), down 2.6 percent at $33.38.

But among sectors, losses in energy and materials outpaced
others, with both the S&P energy .GSPE and materials .GSPM
down more than 4 percent each. Oil futures were down about $4
a barrel in New York.

The S&P 500 fell for seven straight days before rebounding
Wednesday. Its losses since its May 2nd intraday high have now
reached more than 10 percent, putting it in correction
territory. The CBOE Volatility index .VIX jumped to its
highest since March.

The Dow Jones industrial average .DJI was down 275.72
points, or 2.32 percent, at 11,620.72. The Standard & Poor's
500 Index .SPX was down 29.27 points, or 2.36 percent, at
1,230.57. The Nasdaq Composite Index .IXIC was down 63.75
points, or 2.37 percent, at 2,629.32.

The S&P 500 is now down 2.5 percent for the year and the
Nasdaq is down 1.4 percent. The Dow briefly fell into negative
territory for the year.

First-time claims for unemployment benefits edged down to
400,000 last week, the Labor Department said. For details, see
[ID:nN1E7730AR]

The figure comes a day before the government's monthly
payrolls report, one of the most closely watched numbers
measuring the U.S. economy.

Overseas, the European Central Bank signaled it was buying
government bonds in response to a deepening European debt
crisis. [ID:nLDE77309J]

"You can pick your story for why we're seeing continued
pressure. Europe is probably the most prevalent one today, but
there's the whole unfortunate process with the debt ceiling,
combined with weak economic numbers here and abroad. That
makes for a perfect storm for stocks," said Walter Todd, who
helps manage $950 million at Greenwood Capital in Greenwood,
South Carolina.

A series of breaks in technical support suggests further
losses, according to market technicians.

"It doesn't look good," said John Kosar, director of
research at Asbury Research in Chicago. "Frankly, you have to
look pretty hard to find anything technically that looks
constructive."

He sees another 5 percent to 8 percent in losses in the
S&P 500 from this point.
(Reporting by Caroline Valetkevitch; Additional reporting by
Ryan Vlastelica and Edward Krudy; Editing by Jan Paschal)