Stocks fell 2 percent on Thursday as a disappointing revenue outlook from Cisco Systems and bleak sales from some major U.S. retailers pointed to a worsening economic downturn.
Retailers adding to concerns about consumer spending heading into the holiday shopping season included AnnTaylor , whose shares slid more than 20 percent.
The October jobs payroll report, due on Friday from the Labor Department, is expected to show further signs of the economy's weakness.
"The economy is not doing well," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois. "People are thinking about the jobs number for tomorrow. Most likely it's going to be a bad number."
The Dow Jones industrial average slid 204.62 points, or 2.24 percent, to 8,934.65. The Standard & Poor's 500 Index shed 23.85 points, or 2.50 percent, to 928.92. The Nasdaq Composite Index dropped 42.37 points, or 2.52 percent, to 1,639.27.
AnnTaylor, the women's apparel chain posted a double-digit tumble in third quarter same-store sales.
Shares of Cisco, the largest maker of networking gear, fell more than 2 percent, dragging along other technology bellwethers, including computer maker Hewlett-Packard , down more than 4 percent, and Apple, off more than 3 percent.
Talbots Inc , another women's apparel retailer, said it was pursuing a sale of its J. Jill clothing brand and withdrew its earnings outlook, sending its stock down more than 10 percent to $6.74. Its quarterly same-store sales fell 13.9 percent.
Despite interest rate cuts by the Bank of England and the European Central Bank earlier on Thursday, investors feared the global economy will fall into a protracted recession. Wall Street suffered its worst post-Election Day slide ever on Wednesday.
Investors fear the economic problems will worsen before President-elect Barack Obama's administration has a chance to swing into action before his inauguration on January 20, 2009.
A key economic indicator will be Friday's October employment report from the Labor Department.
Cisco shares fell to $16.99 on Nasdaq, as shares of HP declined to $34.74 on the New York Stock Exchange.
After the bell on Wednesday, Cisco, a maker of networking equipment, said that fallout from the United States had now spread to key markets abroad and revenue could fall as much as 10 percent in the current quarter.
Shares of Apple, the maker of the iPhone, dropped to $99.69. Shares of chip maker Qualcomm, fell nearly 3 percent, to $34.14 on Nasdaq before the chip maker's quarterly results due after the market's close.
Among retailers, AnnTaylor shares slid to 23.1 percent to $9.23, but those of Wal-Mart Stores climbed nearly 3 percent to $55.63 after the world's largest retailer posted October same-store sales that topped Wall Street's forecasts.
A drop in shares of energy companies also weighed on the market as oil prices fell on fears a slowing global economy will mean less energy demand.
Shares of Exxon Mobil dropped nearly 2 percent to $73.55 as U.S. crude for December delivery shed $2.50 to $62.83 a barrel.
Thursday's economic data showed that the number of U.S. workers filing new claims for jobless benefits fell by 4,000 last week to 481,000, according to a Labor Department report.
But the data, coming ahead of Friday's October non-farm payrolls report, also revealed that the job market remained under severe strain.
