US stocks drop after rise in jobless claims

EW YORK -- The stock market fell in early trading Thursday after the Labor Department reported a spike in jobless claims, sapping some of the market's confidence ahead of Friday's anxiously anticipated March employment report.

Wall Street was disappointed to hear the government say the number of people applying for unemployment benefits rose by a full 38,000 last week to 407,000 -- the highest level since September 2005. The less volatile four-week average of claims also increased, by 15,750 to 374,500.

Investors are also cautiously awaiting more testimony from Federal Reserve Chairman Ben Bernanke, who is appearing before Congress for a second straight day. On Wednesday, the Fed chairman said a recession is possible in the first half of this year.

Meanwhile, Wall Street will get another reading on the economy when the Institute for Supply at 10 a.m. Eastern time releases its March survey of the services sector. Some economists predict a slight expansion, while others are predicting contraction; a poor service sector report could dampen sentiment even more ahead of Friday's employment report.

In early trading, the Dow Jones industrial average fell 48.77, or 0.39 percent, to 12,557.06.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 5.82, or 0.43 percent, to 1,361.71, and the Nasdaq composite index fell 13.31, or 0.56 percent, to 2,348.09.

Government bonds rose as investors grew more uncertain about the economy. The yield on the 10-year Treasury note, which moves opposite its price, fell to 3.55 percent from 3.60 percent late Wednesday.

Crude oil fell $1.37 to $103.46 a barrel on the New York Mercantile Exchange, after surging a day earlier on the prospect of climbing demand for gasoline.

The dollar was mixed against other major currencies, while gold was little changed.

The Russell 2000 index of smaller companies fell 4.95, or 0.69 percent, to 707.32.

Tokyo's Nikkei index closed 1.52 percent higher. There were light losses in the European stock markets -- London's FTSE fell 0.70 percent, Frankfurt's DAX lost 0.99 percent and Paris' CAC 40 slid 0.91 percent.

(Agencies)