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Stocks Drop 2% on Global Slowdown Fears

Stocks finished mixed Wednesday as investors expressed mild disappointment with the Federal Reserve's much-anticipated decision to prolong its Operation Twist bond maturity extension program.

The central bank also lowered its expectations for U.S. gross domestic product growth in 2012, going to a range of 1.9%-2.4% from 2.4%-2.9%, and adjusted its projections for employment data to reflect slowing growth.

Fears about a global slowdown intensified Thursday after HSBC and Markit Economics said that the flash China manufacturing purchasing managers index came in at 48.1 in June, sinking to a seven-month low despite the recent interest rate cut by the Chinese government. Levels below 50 point to contraction.

The Hong Kong Hang Seng index settled down 1.3% and the Nikkei in Japan closed up 0.82%.

Meanwhile, The Markit flash eurozone PMI composite output index came in at 46 in June, signaling that the private sector economy shrank at a rate unchanged from May. With the exception of a marginal increase in January, the survey has recorded continual contraction since last September, with the rate of decline having gathered significant momentum in the second quarter.

The FTSE in London settled down by 0.99% and the DAX in Germany declined by 0.77%.

In U.S. economic news, the Labor Department reported that weekly initial jobless claims for the week ended June 16 fell to 387,000 from an upwardly revised figure of 389,000. A level below 350,000 is associated with a consistent improvement in the unemployment rate.

Economists surveyed by were expecting jobless claims of 380,000.

The previously mentioned Philly Fed's business outlook survey fell to minus 16.6 in June, the weakest read going back to August 2011, from May's minus 5.8 figure. Economists were expecting a read of minus 3.5.

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