NEW YORK (TheStreet) -- U.S. stocks fell Thursday after new economic data stoked fears about Europe slipping into recession and slowing growth in China.


Dow Jones Industrial Average

declined 78.5 points, or 0.6%, to finish at 13,046. The

S&P 500

slipped 10.1 points, or 0.7%, to settle at 1393. Both indices fell for a third straight session and are on track for their biggest weekly drop of 2012, with the weakness magnified in the basic materials, energy, transportation and financial sectors.



was off 12 points, 0.4%, at 3063.

While a slowdown in China is widely expected given the country's recently lowered 2012 growth expectations, market worries about a hard landing were exacerbated after a measure of Chinese manufacturing activity dropped sharply in March. The HSBC flash purchasing managers index retreated to a level of 48.1 from February's final reading of 49.6. New orders declined to a four-month low and an expected rebound in export orders failed to materialize.

Glum economic conditions from Europe coincided with the report. In a sign that the eurozone may slide into a recession, business activity shrank more than expected in March, according to a composite purchasing managers' index for the single-currency bloc. The index fell to 48.7 in March from 49.3 in February, according to Markit Economics, coming in below the 50 threshold that would suggest growth. Output as a whole declined in the first quarter.

Overseas, London's FTSE closed lower by 0.79%, and Germany's DAX declined 1.27%. In Asia, Japan's Nikkei Average finishing higher by 0.40% and Hong Kong's Hang Seng index closed ahead by 0.22%.

Positive jobs data in the U.S. did very little for the markets. The Labor Department said that initial jobless claims for the week ended March 17 fell 5,000 to 348,000, the lowest level since February 2008. Economists surveyed by

Thomson Reuters

expected an increase in jobless claims to 354,000. The four-week moving average fell 1,250 to 355,000.

"Most will say this is evidence of continuing improvement in the labor market, but we'll suggest that the pace of improvement seems to be stalling -- so good, but not great," said David Ader, market strategist with CRT Capital Group.

"The speed of the drop in claims over the past few months has been unsustainably fast, and a period of consolidation is now likely under way," added Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The day's losses follow a mixed finish in the prior session, which saw disappointing signs in the domestic housing market and bearish comments from

Federal Reserve

Chairman Ben Bernanke on Europe.

Also Thursday, the Conference Board said that its leading economic indicators index rose 0.7% in February following a downwardly revised gain of 0.2% in January. The February number came in better than the 0.6% increase that economists surveyed by

Thomson Reuters

were expecting.

Meanwhile, the Federal Housing Finance Agency said its housing price index was unchanged in January, following a downwardly revised 0.1% increase in December.

"Sometimes you get a feeling, even as the futures look ugly as all get out and China's slowing and Europe's getting hit, that things in the real economy are really starting to hum around the globe and you can't get sidetracked by the errant comments of BHP (BHP) - Get Reportor the mixed results from Oracle (ORCL) - Get Report or a soggy overnight Purchasing Managers Index number out of China," says Jim Cramer, columnist at RealMoney and manager at Action Alerts Plus.

In corporate news,


(FDX) - Get Report

, the package delivery giant, said that the global economy wasn't growing as robustly as it had expected. The company now predicts growth of 2.3%, down from its earlier forecast of 2.9%. While earnings and revenue for the fiscal third quarter beat estimates, the company lowered its forecast for the fiscal year, saying it will likely earn $6.43 to $6.68 a share, down from its earlier range of $6.25 to $6.75. Analysts were looking for $6.39. Shares fell 3.5% to $92.50.


(MCD) - Get Report

CEO Jim Skinner will step down and hand the reins of the world's largest hamburger chain to President Donald Thompson. Skinner has been CEO since 2004. Thompson, 48 years old, has long been considered among the top candidates in line to succeed Skinner. He has been with McDonald's for 22 years. Shares were down 1% to $95.80.

Lululemon Athletica

(LULU) - Get Report

saw a rise in its fourth-quarter profit to $73.52 million, or 51 cents per share, and revenue growth to $371.52 million. Analysts polled by Thomson Reuters were looking for 49 cents a share on revenue of $362.42 million. Sales for the quarter jumped 29% compared to a year earlier. The athletic chain's projection for the fiscal first quarter was a range of $265 million to $270 million, also beating estimates of $257.46 million. Shares were closed up 2.5% to $75.95.

Dollar General

(DG) - Get Report

reported that its earnings rose 31% in the fiscal fourth quarter. Profit came in at $292.5 million, 85 cents a share, compared with analysts' estimate for 82 cents a share. Revenue of $4.19 billion was slightly higher than the forecast for $4.11 billion. The company said it expects earnings of $2.65 to $2.75 a share for the year, in line with Wall Street's forecast for $2.71 a share. Shares finished 3.1% higher at $46.14.

Diamond Foods


shares tumbled 7.2% to $23.79 after the troubled snacks company inked a deal to amend its credit agreement that calls for it to suspend dividend payments.

May oil futures fell $1.92 to $105.35 a barrel, while April gold futures slipped $7.80 to $1,642.50 an ounce as the commodity complex declined on the China and Europe data.

The benchmark 10-year Treasury was climbing 5/32, diluting the yield to 2.28%, while the U.S. dollar index was up 0.04% to $79.69.

-- Written by Andrea Tse and Chao Deng in New York

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Andrea Tse