NEW YORK (AP) -- Stocks began the fourth quarter on a down note Thursday, falling sharply amid more signs that the economy's recovery will be slow and bumpy.



Major stock indicators fell more than 1 percent after disappointing reports on the manufacturing industry and the labor market overshadowed good news on housing. The Dow Jones industrial average fell 160 points, its biggest slide in a month. Bond prices rose as investors nervously sought a safer place for their money.


The Institute for Supply Management said its index of manufacturing activity in September slipped to 52.6 from 52.9 in August, well below analysts' expectations of 54. It was the second month in a row the reading came in above 50, which indicates growth, after contracting for 18 months.
Earlier Thursday, the Labor Department said new claims for jobless benefits rose more than expected to 551,000, evidence that the labor market is still struggling and that jobs remain scarce. Economists polled by Thomson Reuters had predicted claims to rise to 535,000.


The increase came after three weeks of declines and a day before the Labor Department's monthly report on employment. Economists expect that the unemployment rate rose to 9.8 percent in September from 9.7 percent in August.


Better reports on housing and consumer spending weren't enough to stem the stock market's losses.


Several economic reports this week have already raised doubts among investors about the strength of the recovery and whether this year's powerful stock market rally should continue. The Dow Jones industrial average lost nearly 30 points Wednesday, as a disappointing report on Midwestern manufacturing contributed to the bearish tone.
Despite ending on a wobbly note in September, stocks still put in a stellar third quarter. Both the Dow Jones industrials and the Standard & Poor's 500 index gained 15 percent. It was the Dow's best three-month period since the fourth quarter of 1998.


The slide after a strong quarter wasn't surprising because even bullish analysts and traders have been saying the market and the economy won't be able to mount an unbroken recovery. In part, that's because investors still face big worries about unemployment and consumer spending.
Christian Bendixen, director of technical research at Bay Crest Partners LLC in New York, said recent economic numbers have reminded investors that a recovery in the economy will be difficult.


"For the first time in a while they're coming in a little bit lower than expectations and I think that's scaring a few investors," he said.
In early afternoon trading, the Dow fell 160.98, or 1.7 percent, to 9,551.30. The drop marked the biggest fall for the Dow since Sept. 1 as investors worried about the health of the economy drove the Dow down nearly 186 points.


The broader Standard & Poor's 500 index fell 21.40, or 2 percent, to 1,035.68, and the Nasdaq composite index dropped 54.15, or 2.6 percent, to 2,068.27.


The Russell 2000 index of smaller companies fell 15.92, or 2.6 percent, to 588.36.


Five stocks fell for every one that rose on the New York Stock Exchange, where volume came to 691.4 million shares compared with 680.6 million shares traded at the same point Wednesday.


Bond prices rose, a move to be expected given investors' growing anxiety about the economy. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.20 percent from 3.31 percent late Wednesday.


Darell Krasnoff, managing director of Bel Air Investment Advisors in Los Angeles, said the market had been running too far ahead of the economy and that the mixed data are making some investors uneasy.
"Fear is still very, very fresh in peoples' minds and the magnitude of the potential disaster that we had last September through March, I think still has investor pretty skittish. So our sense is that some bad news can shift sentiment pretty quickly."


Not all the economic news pushed investors to sell. The Commerce Department said consumer spending surged by the largest amount in nearly eight years in August, as personal income growth lags. Consumer spending rose 1.3 percent and incomes edged up 0.2 percent.


Even so, economists worry whether that rebound can be sustained with U.S. households facing rising unemployment and tight credit conditions. Moreover, spending got a temporary boost from the government's Cash for Clunkers program.


Meanwhile, the National Association of Realtors said pending home sales in August rose 6.4 percent from July to 103.8. Economists surveyed by Thomson Reuters expected the index would rise to 98.6.
Many reports this week have raised investors' doubts about the economic recovery and whether they should be continuing this year's rally. The Dow lost nearly 30 points Wednesday, as a disappointing report on Midwestern manufacturing contributed to the bearish tone.


The dollar mostly rose against other major currencies, while gold prices slid.
Light, sweet crude fell 72 cents to $69.89 a barrel on the New York Mercantile Exchange.


Overseas markets fell, even as the International Monetary Fund said the global economy is recovering faster than expected, but warned it will be a sluggish rebound.


Britain's FTSE 100 fell 1.7 percent, Germany's DAX index slid 2.1 percent, and France's CAC-40 lost 2 percent. Japan's Nikkei stock average fell 1.5 percent.