* Fears over earlier Fed rate hike spur selling
* Investors fret over Argentina default fallout, Russia
* Exxon falls after results
* Labor costs post largest gain in more than 5-1/2 years
* Dow down 1.9 pct, S&P 2 pct, Nasdaq 2.1 pct
(Updates close with details on VIX, volume; LinkedIn up after
By Caroline Valetkevitch
NEW YORK, July 31 The S&P 500 posted its worst
daily decline since April and first monthly drop since January
on Thursday as economic data sparked concern that the Federal
Reserve could raise interest rates sooner than some have
Data showing that U.S. labor costs recorded their biggest
gain in more than 5-1/2 years in the second quarter came a day
after the Fed upgraded its assessment of the U.S. economy while
reiterating it was in no hurry to raise rates.
Problems in overseas economies added to the bearish tone,
with Argentina defaulting on its debt for the second time in 12
"If we start to see wages moving higher that's got a be a
signal that we are getting closer to the Fed's mandates," said
Quincy Krosby, market strategist at Prudential Financial in
Newark, New Jersey.
Policymakers for the Fed, which has kept overnight rates
near zero since December 2008, at the close of a two-date
meeting on Wednesday took note of both faster economic growth
and a decline in the unemployment rate, though they expressed
concern about remaining slack in the labor market.
On Thursday, all 10 macro S&P 500 sectors ended down on the
day, with energy down 2.4 percent and leading the
decline. Exxon Mobil Corp's second-quarter earnings beat
expectations but production dropped, and its shares fell 4.2
percent to $98.94.
The CBOE Volatility index, often referred to as Wall
Street's fear gauge, jumped 27.2 percent to close at 16.95, its
highest level since April 11.
Based on the latest available data, the Dow Jones industrial
average fell 317.06 points, or 1.88 percent, to 16,563.3.
The S&P 500 lost 39.4 points, or 2 percent, to 1,930.67,
and the Nasdaq Composite dropped 93.13 points or 2.09
percent, to 4,369.77.
Volume was much heavier than average. About 7.8 billion
shares changed hands on U.S. exchanges, well above the 5.6
billion average for the month to date, according to data from
BATS Global Markets.
The S&P 500 and Nasdaq both marked their biggest daily
percentage drops since April 10. For the Dow, the percentage
drop was the biggest since Feb. 3.
In a signal of possible further losses ahead, the S&P 500
closed below its 50-day moving average for the first time since
For the month, the Dow was down 1.6 percent, the S&P 500 was
down 1.5 percent, and the Nasdaq was down 0.9 percent.
Investors on Wednesday had hoped for a midnight deal over
Argentina's debt talks with holdout creditors, but the plan fell
through. Even a short default will raise companies' borrowing
costs, add to pressure on the peso, drain dwindling foreign
reserves and fuel what is already one of the world's highest
In Russia, news agencies reported that Russia banned soy
imports from Ukraine and may restrict Greek fruit and U.S.
poultry in what could be responses to new Western sanctions over
After the bell, shares of LinkedIn jumped 8.9
percent to $196.70 after the corporate networking site reported
a 47 percent increase in quarterly revenue and forecast
better-than-expected adjusted profit and revenue in the current
During the regular session, Kraft Foods Group
shares fell 6.4 percent to $53.59. The stock was the biggest
percentage decliner on the Nasdaq after Kraft late on Wednesday
reported a scant rise in quarterly revenue.
(Additional reporting by Rodrigo Campos; Editing by Leslie