Stocks Erase Worst of Losses

"The yen went to a five-month high vs. the dollar. This may have caused some unwinding of the carry trade," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "Every time we have seen this carry-trade issue pushed, we see the futures get hit hard."

Energy and commodity prices were on a steep decline. Oil prices dropped after their recent uptrend. The front-month September crude contract tumbled $2.33 to close at $71 a barrel, as Tropical Storm Erin weakened to a tropical depression after it made landfall along the Texas coast.

Gold futures dove $21.70 to finish at $658 an ounce, and silver was down $1.06 to $11.49 an ounce.

Among subsector indices, the Philadelphia Gold & Silver Index dumped 4.9%, the Philadelphia Oil Service Sector Index ended down 3.1%, and the Amex Oil Index lost 0.8%.

Separately, more bad news for the housing sector arrived. The Commerce Department said U.S. housing starts fell a greater-than-expected 6.1% in July to 1.38 million annualized units, the lowest level in more than 10 years. On average, economists expected new starts to total 1.40 million units.

The report had even more disappointments, as building permits dropped 2.8% to 1.37 million last month, below the expected 1.40 million annual pace.

Elsewhere on the economic docket, the Labor Department said that initial jobless claims rose by 6,000 last week to 322,000.

Among earnings, J.C. Penney (JCP Quote - Cramer on JCP - Stock Picks) beat second-quarter estimates by a penny, and its shares rose 2.5%.

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