Updated from 3:48 p.m. EST

Stocks closed sharply lower again Thursday, as a report that the al Qaeda group was behind a group of explosions in Madrid earlier in the day multiplied losses, pushing the Dow Jones Industrial Average 5.6% below its 2004 high set in February.

The Dow tumbled 168.51 points, or 1.64%, to 10,128.38, its biggest one-day loss since last May. The S&P 500 slipped 17.10 points, or 1.52%, to 1106.79, also its biggest loss in 10 months and a new low for the year, while the Nasdaq fell 20.26 points, or 1.03%, to 1943.89.

Over four losing sessions this week, the Dow is down 468 points, or 4.4%, while the Nasdaq has given up 104 ponts, or 5%.

Volume on the New York Stock Exchange today approached 1.9 billion shares, while 2.2 billion shares changed hands on the Nasdaq. Decliners outnumbered advancers by about 3 to 1 on both markets.

The late swoon Thursday came after reports that a London-based Arabic language newspaper said al Qaeda had claimed responsibility for a group of explosions that rocked three train stations in Madrid, killing at least 190 people.

"The reports about al Qaeda being involved in this attack in Spain really creates a lot of fear out there," said John Hughes, an equity strategist at Shields & Co. "You're oversold on the Nasdaq and you're almost oversold on the Dow and the S&P, but that rumor late in the day like this has some people panicked. Is there another attack coming tonight somewhere, or something like that? Who knows?

"But balance that against the fact that we are oversold," Hughes added. "If we continue down like this, we should be able to get some kind of lift in here in the next couple of days."

The latest losses come amid a growing consensus that the major indices are undergoing a long-awaited correction following sharp gains in 2003.

"It still feels like a correction," said Brian Pears, head equity trader at Victory Capital Management. "Up until now, it's been a correction that looked like it was going to be sideways with time being the most important factor, but as it goes on and the selling persists, it looks like this might be one where the price drops become a little more dramatic," he said.

Matt Kelmon, a portfolio manager at Kelmoore Strategy Funds, believes stocks will turn around in April following another down month in March. "You have tax returns coming in April, people are funding their retirement plans and now money that's still coming into mutual funds is piling up on the sidelines, so there's a good catalyst for another rally to come once all the week longs get flushed out."

European averages fell sharply, partly because of the Madrid blasts. London's FTSE fell 2.2% to 4445, while Germany's Xetra DAX shed 3.5% to 3905. In Asia, Japan's Nikkei closed down 1.2% to 11,297, while Hong Kong's Hang Seng gave up 1.4% to 13,024.

The 10-year Treasury note erased losses to gain 1/32, moving its yield to 3.72%.

The dollar edged up on the yen but lost ground to the euro. It was recently buying 110.89 yen in New York compared to 110.76 at Wednesday's close. The euro was worth $1.2319 compared to $1.2237 Wednesday. Crude oil and gold prices climbed.

On the economic front, the government reported that initial unemployment claims fell 6,000 to 341,000 in the most recent week. The figure beat expectations; the consensus estimate was for 343,000 claims.

According to the Census Bureau, retail sales increased 0.6% in February, hitting forecasts. Excluding automobiles, retail sales were flat, which missed economists' forecast for 0.5% growth.

On Capitol Hill, Fed Chairman Alan Greenspan addressed the sensitive issue of American jobs migrating to foreign labor markets. He told a congressional committee on education and the labor force that taking protectionist measures against the outsourcing of American jobs was short-sighted and ultimately harmful to the economy.

"These alleged cures would make matters worse rather than better," said Greenspan, according to a text of his statement. "They would do little to create jobs; and if foreigners were to retaliate, we would surely lose jobs. Besides enhancing education, we need to further open markets here and abroad to allow our workers to compete effectively in the global marketplace."

The nation's budget deficit hit $96.61 billion last month, slightly less than the $96.67 billion shortfall recorded last February and below economists' $100 billion forecast. The deficit was $1.39 billion in January of this year.

In corporate news, EchoStar Communications ( DISH) said its annual report may be delayed because securities regulators have raised accounting issues that may require a restatement of its 2001 results. The company, which settled a contractual dispute with Viacom ( VIA.B) late Wednesday, also delayed the release of its fourth-quarter earnings. It did report that it added 340,000 subscribers during the quarter.

Nortel ( NT) was in focus during Thursday's session after the company said Wednesday it would delay filing its 2003 annual report to the Securities and Exchange Commission because its previously announced accounting review could lead it to restate results for 2003. Its stock fell 13.5% to $5.95 in the premarket.

Target ( TGT) shares rose after it said Wednesday that it is exploring "strategic alternatives," including a possible sale, for its Marshall Field's and Mervyn's chains. The company, which has hired Goldman Sachs as an adviser in the process, estimates it will make a decision and execute it within "several months." Shares rose over 7% to a new 52-week high of $44.75.

After the bell, Oracle ( ORCL) reported an 11% increase in net income. The company earned 12 cents a share in the third quarter, meeting analysts' expectations.

At 8:30 a.m. EST on Friday, the Census Bureau is expected to report that business inventories increased 0.3% in January, matching December's increase.

At 9:45 a.m. EST, the University of Michigan will release preliminary numbers for its consumer sentiment index in March. The index is expected to rise from February's reading of 94.4 to 95.4, signaling that flagging consumer confidence may be shifting in a positive direction.

The Economic Cycle Research Institute will release its Weekly Leading Index data at 10:30 a.m., and Greenspan will address a finance conference at Boston College at noon.

Before the opening bell, Apollo Group ( APOL) is scheduled to release second-quarter earnings. Wall Street analysts expect earnings per share of 32 cents compared to 24 cents in the same quarter last year, according to Thomson One Analytics.

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