NEW YORK Stocks fell on Thursday as expectations for quick stimulus action from the Federal Reserve faded and Chinese and euro zone data pointed to a stalling global economy.
Each of the 10 major S&P sectors finished in negative territory, with the economically sensitive materials sector .GSPM the worst performer, down 1.7 percent.
A slump in Hewlett-Packard (HPQ.N) shares weighed on the technology sector, but the S&P 500 stayed above a support level at 1,400, which is seen as a positive sign.
Minutes published from the latest Federal Reserve meeting indicated the central bank might be ready for another round of stimulus for the economy, supporting equities on Wednesday. Investors speculated another round of quantitative easing by the Fed was a possibility.
However, St. Louis Fed President James Bullard, a non-voting member of the Federal Open Market Committee, said on CNBC that U.S. data has been somewhat better since the July 31-August 1 Fed meeting and the minutes were "a bit stale.
"You can definitely correlate (the decline) with Bullard's comments this morning trying to temper expectations," said Seth Setrakian, co-head of US equities at First New York Securities in New York.
"Is this an appropriate move? Why not? We've had a rally on expectations that things are going to happen, not because things are getting better."
The Dow Jones industrial average .DJI dropped 115.30 points, or 0.88 percent, to 13,057.46. The Standard & Poor's 500 Index .SPX lost 11.41 points, or 0.81 percent, to 1,402.08. The Nasdaq Composite Index .IXIC fell 20.27 points, or 0.66 percent, to 3,053.40.
The S&P 500 is up nearly 10 percent since June 1 after hitting a four-year high earlier this week. However, recent losses have put the benchmark S&P 500 index on pace for its first weekly drop in seven as the rally appeared to be losing steam.
Fed Chairman Ben Bernanke in the past has used annual conferences in Jackson Hole, Wyoming, to signal publicly the Fed's intentions, but investors this time may be disappointed.
"What they said (in the minutes) was a little while ago and some of the data has actually been a little bit better recently, so I don't think QE is a foregone conclusion at all," said Doug Foreman, director of equities at Kayne Anderson Rudnick Investment Management, an Affiliated Manager of Virtus Investment Partners in Los Angeles, California.
This year's Jackson Hole conference takes place at the end of the month.
World business surveys painted a picture of economic malaise from Beijing to Berlin.
The HSBC Flash China manufacturing purchasing managers index (PMI) - a preliminary reading that provides an early peek at data for August - fell this month to its lowest level since November.
A German business survey showed orders from abroad for the country's goods, a mainstay of its economic strength, fell at the fastest rate in more than three years.
The number of Americans filing new claims for jobless benefits unexpectedly rose last week while U.S. manufacturing improved only slightly in August, worrisome signs for an economy struggling to create enough jobs.
Sales of new single family homes rose in July, matching April's two-year high.
The reports could be interpreted as evidence the economy is not in need of further stimulus from the Fed.
A group of brokerages cut their price targets on Hewlett-Packard's stock after the No. 1 personal computer maker posted an $8.9 billion loss and cut its earnings outlook for the year, echoing concerns raised by rival Dell DELL.O about faltering demand for PCs.
HP shares fell 8.1 percent to $17.65 as the worst performer on the Dow and Dell extended recent losses, slipping 3.8 percent at $11.24. The NYSEArca computer hardware index .HWI dropped 1.6 percent.
Contributing to weakness in the materials sector, shares of U.S. steel producers fell after a Dahlman Rose analyst downgraded the sector, saying prices of the metal will decline. U.S. Steel (X.N) fell 6.9 percent to $21.19.
Big Lots (BIG.N) shares tumbled 20.8 percent to $30.76 as the biggest percentage decliner on the S&P 500 after the retailer reported a lower-than-expected quarterly profit and cut its full-year adjusted earnings forecast.
Volume was light with about 5.23 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below the daily average of 6.62 billion.
Declining stocks outnumbered advancing ones on the NYSE by 2,036 to 906, while on the Nasdaq, decliners beat advancers 1,657 to 800.
(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)