NEW YORK ( TheStreet) -- Stocks fell sharply in the final hour of trading on Thursday as tech stocks reversed early gains and mid-cap stocks came under fire.

The Dow Jones Industrial Average which was negative for most of the session, spiked lower in the final hour of trading. The blue-chip index finished down 76 points, or 0.7%, at 10,662. The S&P 500 slid 9 points, or 0.8%, to 1,125, dipping back below the key technical level of 1,130. The Nasdaq, which had been up the majority of the day, also succumbed to the selling pressure, losing 7 points, or 0.3%, to close at 2,327.

Walt Disney ( DIS), JPMorgan Chase ( JPM), General Electric ( GE) and Bank of America ( BAC) dragged the Dow lower, declining over 2% each.

Alcoa ( AA) and Hewlett Packard ( HPQ) were among the few gainers on the Dow, up 0.3% and 1.5% respectively.

Of the Dow's 30 components, 26 ended in the red. The index itself fell for a second straight session, but is still up 6.4% in September, historically one of the worst months for stocks.

From a sector standpoint, financials, transportation and capital goods stocks were among the worst hit. Overall market breadth on the New York Stock exchange was also very negative with decliners outnumbering advancers by a 7-2 ratio.

The session started out ugly as European equities markets were in broad decline after a survey of purchasing managers in the eurozone came in at 53.8, down from 56.2 in August. Ireland's economy also contracted, adding to concerns about Europe's economic recovery.

The FTSE in London lost 0.9%, and the DAX in Frankfurt was shed 0.4%. It was a quiet day for Asian markets, with Hong Kong's Hang Seng and Japan's Nikkei closed for holidays.

Then before the opening bell, the Labor Department said initial weekly jobless claims rose by 12,000 to 465,000 in the week ended Sept. 18, exceeding the 450,000 claims that economists had been expecting, according to Briefing.com.
Unemployment

"The 10-year average for unemployment claims is 393,000 and that included a period when we had a real estate boom. We are still about 70,000 above that average," Michael Pento, senior economist at Euro Pacific Capital, told TheStreet."Even though the so-called recession has ended, there is no job growth," said Pento, pointing out that even though layoffs may be slowing, companies were still not hiring.

In other economic news, the National Association of Realtors, which said existing-home sales rose to 4.13 million in August from 3.84 million previously, meeting Wall Street's expectations, according to Briefing.com.

The Conference Board's August leading indicators index rose 0.3%, exceeding expectations for growth of 0.1%. August's level compares with July's 0.1% increase.

Jay Suskind, senior vice president at Duncan Williams, said the morning's economic reports were pretty benign."Jobs data didn't suggest any type of rebound, reinforcing expectations for moderate GDP growth of 1% to 2%. Labor and housing are the two areas that are keeping the economy from improving so until there's a turnaround, the economy will continue to chug along."

Earlier this week, markets got a lift from a report from the National Bureau of Economic Research that said the recession had officially ended in June 2009. However, with unemployment remaining high, investors now feel there is little to be cheerful about.

In an interview that appeared early Thursday morning on CNBC's Squawk Box, legendary investor Warren Buffet said that the U.S. economy was still in a recession. "On any common sense definition, if the average American is below where he was before, or his family, in terms of real income, GDP, we're still in a recession. And-- and we're not gonna be out of it for awhile, but we will get out of it," Buffett told CNBC.

Still, stocks are still higher for the month. "It has been a good month and we're nearing the end of the third quarter so you'll start to get a level of cleaning up positions," Suskind said, adding that the focus will start to shift to earnings.

"Even though the economy is growing slowly, I think the fear of a double-dip is pretty much off of the table now. I think the S&P 500 hitting 1130 was a crucial mark and you get a sense that the market wants to move higher. However, I think it'll continue to stay within, and possibly on the upper end, of this trading range until the elections."

In commodity markets, natural gas prices settled slightly higher after the Energy Information Administration said natural gas storage levels added 73 billion cubic feet in the week ended Sept. 17, coming in on the low end of the injection range of 77 to 81 billion cubic feet that analysts polled by Platts had been expecting.

October natural gas contract settled 5 cents higher at $4.02 per million British thermal units. Meanwhile, November crude settled 24 cents higher at $75.70 a barrel.

Elsewhere in commodity markets, the December gold contract settled higher by $4.2, at $1,296.30 an ounce.

The tech sector was showing the best performance of the session with Tessco Technologies ( TESS) and Red Hat ( RHT) among some of its biggest gainers. According to a Bloomberg report that cites a regulatory filing, Discovery Group sent a letter to Tessco's board relaying its interest in purchasing all the shares it doesn't already own at $15.50 a share. Red Hat, meanwhile, was gaining on better-than-expected second-quarter profits. Tessco shares ended 23% higher at $15.18 and Red Hat's stock gained 9% at $40.05.

In other equities news, Starbucks ( SBUX) is hiking prices on certain drinks in specific markets, citing higher ingredient costs. Shares shed 1.8% to $25.45.

Shares of GlaxoSmithKline ( GSK) shed 1.8% to $39.43 on news that the U.S. Food and Drug Administration will substantially restrict the use of its diabetes drug Avandia to patients with Type 2 diabetes who can't manage their condition with other medications.

Blockbuster ( BLOKA.PK) said Thursday it reached an agreement with bondholders to recapitalize its balance sheet and has filed for Chapter 11.

McDonald's ( MCD) upped its quarterly dividend by 11% to 61 cents a share. The stock was down 0.6% at $74.64.

Rite Aid ( RAD) reported a wider second-quarter loss of 23 cents a share, which exceeded the loss of 16 cents a share that analysts had been projecting. Revenue also dropped during the quarter and same-store sales fell 1.5%. The stock sank 13.6% to 95 cents.

Shares of Bed Bath & Beyond ( BBBY)rose 3.2% to $43.40 after the retailer topped expectations with a third-quarter profit of 70 cents a share and boosted its year-end profit growth expectations.

The dollar was trading higher against a basket of currencies, with the dollar index up by 0.3% while the benchmark 10-year Treasury note was up by 2/32, weakening the yield to 2.549%.

--Written by Melinda Peer and Shanthi Venkataraman in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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