Stocks fell Thursday on new worries that Greece would default on its debt.
Overseas markets tumbled, with many Asian and European indexes down by more than 1 percent. Greek debt troubles have been one of the few factors pulling stocks lower around the world so far in 2010.
A disappointing report on initial jobless claims also hurt U.S. stocks. The Labor Department said initial claims for jobless benefits rose unexpectedly last week, jumping 18,000 to a seasonally adjusted 460,000. Economists polled by Thomson Reuters had forecast a drop to 435,000.
In midmorning trading, the Dow Jones industrial average fell 41.27, or 0.4 percent, to 10,856.25. The Standard & Poor's 500 index dropped 6.13, or 0.5 percent, to 1,176.31, while the Nasdaq composite index fell 14.18, or 0.6 percent, to 2,416.98.
Stocks have retreated in recent days after the Dow flirted with 11,000 on Monday and Tuesday for the first time in 18 months.
New sales reports from retailers showed consumers are beginning to return to stores, though the data hasn't been good enough to offset the concerns over Greece's debt or the disappointing jobs report.
Both Target Corp. and TJX Cos. increased their first-quarter earnings forecasts following strong sales in March. Macy's Inc. and American Eagle Outfitters Inc. were also among retailers reporting March sales that topped analysts' expectations.
Consumer spending is a primary driver of economic growth, so a jump in spending would show consumers are gaining more confidence in their finances and the economy.
The sales reports are especially important after a worse-than-expected report Wednesday on consumer borrowing in February.
The Dow had its worst day since late February on Wednesday, falling 72 points. Losses accelerated late in the day after the Federal Reserve said consumer borrowing fell unexpectedly in February.
The retreat came after major indexes had been on a slow, consistent climb. The S&P 500 hit an 18-month high on Tuesday and had risen 12.6 percent in the past two months.
Bond prices were little changed. The yield on the benchmark 10-year Treasury note fell to 3.85 percent from 3.87 percent late Wednesday.
The 10-year yield fell sharply Wednesday after an auction for the notes was welcomed with strong demand from investors. Yields had been rising steadily in recent weeks heading into the auction on concerns about oversupply and continued signs of economic growth.
Gold and oil fell as the dollar rose against the euro and other currencies.
Greece's borrowing costs continue to surge. Investors are demanding more interest now to hold Greece's debt because of concerns about a possible default. The spread between Greek and German two-year bonds swelled by a staggering 1.2 percentage points Thursday.
The higher rates will make it more expensive for Greece to issue new debt or roll over outstanding debt, which could trigger a default.
Four stocks fell for every one that rose on the New York Stock Exchange, where volume came to 126.7 million shares, compared with 142.2 million traded at the same point Wednesday.
The Russell 2000 index of smaller companies fell 5.62, or 0.8 percent, to 693.84.
Britain's FTSE 100 fell 1.2 percent, Germany's DAX index dropped 1.2 percent, and France's CAC-40 fell 1.6 percent. Japan's Nikkei stock average fell 1.1 percent.