Stocks fall in early going on unemployment worries

Fear is creeping back into the stock market.

This week’s sell-off in stocks accelerated Thursday as major market indicators slid more than 1.5%, cutting nearly 130 points off the Dow Jones industrial average.

Another bad signal from the job market and concern over a possible downgrade of British government debt added to worries that the market might have moved too high too fast over the last 2 1/2 months.

Hopeful signs of recovery led investors to push the Standard & Poor’s 500 index up more than 30% from 12-year lows in early March.

“People are nervous after what they’ve just been through,” said Ron Weiner of RDM Financial.

Indicators of investor anxiety soared. Wall Street’s “fear index” or VIX, a gauge of stock market volatility, jumped more than 8%. The VIX had been easing steadily since early March, and investors were encouraged earlier this week when it fell below 30 for the first time since September. On Thursday, it rose above that level, closing at 31.35.

Meanwhile, gold prices hit a two-month high as the selling on Wall Street led investors to seek safety.

Bond prices slumped after the Treasury announced another round of debt auctions next week that will increase the supply of bonds in the market and Standard & Poor’s warned that Britain’s debt might augur trouble for other countries.

The market pulled off its lows after a late 15% surge in General Motors. Earlier, GM said it reached a key agreement with the United Auto Workers on concessions that could help the struggling automaker restructure outside of Bankruptcy Court.

The Dow fell 129.91, or 1.5%, to 8,292.13, after earlier dropping as much as 201 points. The S&P; 500 declined 15.14, or 1.7%, to 888.33, and the Nasdaq composite index fell 32.59, or 1.9%, to 1,695.25.

S&P; rattled investors when it said Britain might have its rating cut because of rising debt levels. That would raise the cost of borrowing for the British government, which is taking a big role in bailing out that country’s stricken banking system, and could mean similar warnings for other countries, including the U.S.

Even with governments pumping huge amounts of money into economies around the world, there are questions about how soon a rebound might take hold.

The Labor Department reported Thursday that continuing claims for unemployment benefits set their 16th straight weekly record.

Gains in large bank stocks helped curb the market’s overall losses after Goldman Sachs raised its rating on large banks to “neutral.” JPMorgan Chase added 35 cents to $34.90 and Wells Fargo rose 58 cents, or 2.4%, to $25.04.

Regional bank stocks suffered, however. Regions Financial tumbled 79 cents, or 16.2%, to $4.10 after it priced a public stock offering at a big discount. Fifth Third Bancorp fell 76 cents, or 9.9%, to $6.95, while Huntington Bancshares lost 52 cents, or 10.8%, to $4.30.

In other trading, the Russell 2000 index of smaller companies fell 12.83, or 2.6%, to 476.52.

The price of the 10-year Treasury note fell, pushing its yield to 3.37% from 3.19% late Wednesday. The dollar was mostly lower against other major currencies.

Oil fell 99 cents to $61.05 a barrel after rising sharply earlier in the week. Investors worried that continued sluggishness in the economy would reduce demand.

Overseas, Japan’s Nikkei stock average rose 0.2%. In Europe, stocks fell after the S&P; warning about Britain’s debt. The FTSE 100 in London tumbled 2.8%, Germany’s DAX index fell 2.7% and France’s CAC-40 lost 2.6%.