Bank stocks lead market lower

Wall Street's four-day rally ground to a halt Thursday, with major indexes falling 1 percent ahead of a key labor market report expected to underscore fears the economy is headed for another recession.

Financials were the biggest losers, selling off sharply in the afternoon, led by Goldman Sachs Group Inc. Goldman's shares fell 3.49 percent to $112.16 after agreements with the Federal Reserve and New York State's banking regulator over wrongful foreclosures raised concerns that Goldman is still not yet off the hook.

JPMorgan Chase & Co. and Bank of America Corp. were the two biggest losers on the Dow, both falling more than 3 percent.

A day ahead of the government's release of monthly payrolls data, a decline in the employment component of the Institute for Supply Management's factory activity index heightened worries that August jobs growth will be weaker than feared. ISM's factory activity index came in only just above the level that indicates growth.

Recent employment indicators suggest "zero growth in private payrolls," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "If that comes to pass, we are going to have some big disappointments tomorrow."

In another discouraging sign, the White House, already struggling to turn around the high U.S. unemployment rate, cut its economic growth outlook for the next two years.

After dropping more than 17 percent from early July to early August, the Standard & Poor's 500 index had risen by 9 percent heading into yesterday's session, leaving investors reluctant to place big bets before the August labor report, which is expected to show an increase of 75,000 jobs.

"The news over the past few days hasn't been conducive to the rally continuing, said Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio. Bateman, who helps oversee $14.5 billion, said he was not optimistic about the payroll report being strong.

The Dow Jones industrial average was down 119.96 points, or 1.03 percent, at 11,493.57. The S&P was down 14.47 points, or 1.19 percent, at 1,204.42. The Nasdaq composite index was down 33.42 points, or 1.30 percent, at 2,546.04.

The benchmark S&P gained more than 5 percent during the four-day rally that ended Wednesday on increasing hopes for a new stimulus plan from the Federal Reserve at its meeting in late September.