Stocks Drop, Hurt by Worries Over U.S. and European Economies

Meantime, the Labor Department reported that initial jobless claims for the week ended June 30 fell 14,000 to 374,000 from the previous week's upwardly revised figure of 388,000. Economists, on average, expected a fall to 385,000.

The four-week moving average was 385,750, a decrease of 1,500 from the previous week's average of 387,250.

Continuing claims for the week ended June 23 was 3.306 million, an increase of 4,000 from the preceding week's level of 3.302 million.

The Institute for Supply Management reported that its June non-manufacturing index registered 52.1%, which is 1.6 percentage points lower than the 53.7% registered in May and indicating continued growth at a slower rate in the non-manufacturing sector. Economists on average were expecting the reading to come in at 53%.

Despite the slowing reflected by the ISM report as a whole, the employment index part of it increased by 1.5 percentage points.

"I think one thing the bulls have going for them this earnings season is the fact that expectations have gone down heading into the season, so there's a lower bar to overcome, which could be a plus," said Todd Salamone, senior vice president of research at Schaeffer's Investment Research.

The FTSE in London finished up by 0.14% and the DAX in Germany closed lower by 0.45%. Hong Kong's Hang Seng Stock index finished up 0.5%. The Nikkei in Japan closed lower by 0.27%.

Spain on Thursday managed to sell €3 billion of bonds, satisfying its maximum target, though borrowing costs increased on two of the three bonds up for auction.

August crude oil futures were down 74 cents to $86.92 a barrel. August gold futures were slipping $17.30 to $1,604.50 an ounce.

The benchmark 10-year Treasury was up 5/32, diluting the yield to 1.604%, while the dollar was rising 0.74%, according to the dollar index.

In corporate news, sales at many of the top U.S. retailers were hurt in June by worries about the economy and the still high unemployment rate.

Costco(COST) , the warehouse retailer, said same-store sales in June rose 3%. Analysts were expecting same-store sales to rise 3.7%. Total sales for the month rose 6% to $9.18 billion from $8.69 billion a year earlier.

Shares ended Thursday down less than 0.5%.