The stock market's pullback erased most of the 370-point gain the Dow logged the prior two sessions and shows the lack of solid conviction behind many of investors' recent bets.

Heading the list of worries, insurer American International Group Inc. reported a loss of more than $5 billion for the second quarter and the Labor Department said the number of newly laid off people seeking jobless benefits last week jumped to its highest level in more than six years. Weak sales reports from Wal-Mart Stores Inc. and other retailers added to investors' unease.

Meanwhile, an announcement by the credit-ratings agency Moody's Investors Service that it placed the long-term ratings of credit card lender American Express Co. on review for possible downgrade exacerbated investors' nervousness.

Bill Stone, chief investment strategist for PNC Wealth Management, said the stream of economic news has been somewhat negative lately, often short-circuiting the market's attempts to build on rallies. Thursday's reports on employment and financials only added to the uneasiness, he said.

"The concerns about a weakening economy always run to worries about the financials and then you add some negative news to them on their own and you've got what we've got today," he said.

The Dow fell 224.64, or 1.93 percent, to 11,431.43. It was the Dow's sixth triple-digit move in the past two weeks, illustrating how commonplace big swings in the indexes have become amid investors' uncertainty about the economy.

Broader indicators also slid Thursday. The Standard & Poor's 500 index fell 23.12, or 1.79 percent, to 1,266.07, and the Nasdaq composite index fell 22.64, or 0.95 percent, to 2,355.73.

Oil prices that fell sharply earlier in the week rebounded Thursday, likely adding to Wall Street's downbeat mood. Light, sweet crude rose $1.44 to settle at $120.02 on the New York Mercantile Exchange.

Bonds jumped as investors sought the protection of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its prices, fell to 3.93 percent from 4.05 percent late Wednesday. The dollar mostly rose against other major currencies, while gold prices fell.

The Labor Department said the number of newly laid off people seeking jobless benefits increased by a seasonally adjusted 7,000 to 455,000 last week, the highest level since late March 2002. Wall Street had expected new claims to rise to around 430,000.

The number of people continuing to collect unemployment benefits rose for the week ending July 26 to the highest level since early December 2003, the Labor Department said. In recent weeks, General Motors Corp., Weyerhaeuser Co. and Starbucks Corp. have all announced job cuts, sending more people to the unemployment lines.

Stocks briefly pulled off their lows in the session after the National Association of Realtors said its seasonally adjusted index of pending sales for existing homes rose 5.3 percent in June from May, rather than declining as economists had expected. Despite the June increase, the index sits 12 percent below year-ago levels.

Jerry Webman, chief economist at Oppenheimer Funds Inc., said the swift pullback in stocks after the day's economic readings illustrates the fragility of investor sentiment. He said the market's volatility reflects an undercurrent of uncertainty and efforts by some traders to capitalize on shifts in the mood.

"We react very strongly to bits of news," he said. "The whipsaw danger is pretty high here."

American International Group fell $5.25, or 18 percent, to $23.84 after the company reported its loss and said weakness in the credit markets has erased several billions of dollars in value from its credit default swaps portfolio and other investments. The stock was by far the steepest decliner among the 30 that make up the Dow industrials.

Other insurers declined following AIG's report. Genworth Financial Inc. fell $1.62, or 9.9 percent, to $14.67.

American Express fell $1.59, or 4.2 percent, to $36.40 after the Moody's announcement.

Citigroup Inc. fell $1.23, or 6.2 percent, to $18.47 after federal and state regulators announced settlements Thursday in which the company will repurchase more than $7 billion in auction-rate securities and pay $100 million in fines. The company neither acknowledged nor denied wrongdoing under the settlements. New York Attorney General Andrew Cuomo had threatened to charge Citigroup with fraudulent sales of auction-rate securities and with the destruction of key documents.

The latest worries about financials offered an unwelcome reminder of the trouble companies are having with bad debt on their balance sheets. Tightness in the credit markets makes it hard for companies to unload and even value mortgages and other paper. And the reports of rising unemployment Thursday only added to fears that defaults on mortgages and other borrowings aren't likely to end soon as consumers continue to struggle.

The results from Wal-Mart and other retailers fanned concerns about consumer spending, which accounts for more than two-thirds of U.S. economic activity.

Wal-Mart, the world's largest retailer, said same-store sales, or stores open at least one year, rose 3 percent in July as consumers began using up their government stimulus money. Analysts who follow the important measure of a retailer's health had expected a 3.4 percent rise, on average. Wal-Mart, also a Dow stock, fell $3.80, or 6.3 percent, to $59.96.

Other retailers' reports disappointed Wall Street. Target Corp. fell $2.25, or 4.7 percent, to $45.76, while Macy's Inc. fell 76 cents, or 3.9 percent, to $18.92.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where consolidated volume totaled 5.09 billion shares, compared with 4.77 billion shares traded Wednesday.

The Russell 2000 index of smaller companies fell 12.49, or 1.72 percent, to 713.41.

Overseas, Japan's Nikkei stock average fell 0.98 percent. Britain's FTSE 100 fell 0.16 percent, Germany's DAX index fell 0.27 percent, and France's CAC-40 added 0.20 percent.

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