* Economy a major worry despite fall in jobless claims
* S&P in correction territory, off 10 pct since May
* Dow down 2.4 pct, S&P off 2.6 pct, Nasdaq off 2.7 pct
* For up-to-the-minute market news see [STXNEWS/US] (Updates to afternoon)
By Caroline Valetkevitch
NEW YORK, Aug 4 (Reuters) - Investors fled stocks on Thursday, putting the S&P 500 into correction territory, as worries about the U.S. economy and European debt escalated.
All three indexes were down 2 percent, having fallen more than 3 percent each at one point. Decliners beat advancers on the New York Stock Exchange by 14 to 1.
"People are throwing in the towel because they can't find relief on any front. There are a lot of worries about the economy," said Milton Ezrati, market strategist at Lord Abbett Co. in Jersey City, New Jersey, which manages $110 billion in assets.
The Dow Jones industrial average <.DJI> was down 284.35 points, or 2.39 percent, at 11,612.09. The Standard & Poor's 500 Index <.SPX> was down 32.39 points, or 2.57 percent, at 1,227.95. The Nasdaq Composite Index <.IXIC> was down 72.21 points, or 2.68 percent, at 2,620.86.
The S&P 500's losses since its May 2nd intraday high have now reached more than 10 percent, putting it in correction territory.
Analysts predicted further losses ahead, given the degree of pessimism in markets. Bond prices rose sharply as investors sought safety in Treasuries while gold and other commodities sold off.
The drop in stocks follows a string of market declines as investors nervously awaited Congress and the administration to resume their spending cuts debates. Evidence of economic weakness also mounted, raising fear of a return to a recession. A spreading debt crisis in Europe has also threatened to hit the global economy.
Losses occurred in all sectors. Among stocks hitting new
52-week lows were Bank of America
Among individual sectors, losses in energy and materials outpaced others, with both the S&P energy <.GSPE> and materials <.GSPM> down more than 4 percent each. Oil futures were down about $4 a barrel in New York.
The S&P 500 fell for seven straight days before rebounding Wednesday. The CBOE Volatility index <.VIX> jumped to its highest since March.
The S&P 500 is now down 2.3 percent for the year and the Nasdaq is down 1.2 percent. The Dow briefly fell into negative territory for the year.
First-time claims for unemployment benefits edged down to 400,000 last week, the Labor Department said. For details, see [ID:nN1E7730AR]
The figure comes a day before the government's monthly payrolls report, one of the most closely watched numbers measuring the U.S. economy.
Overseas, the European Central Bank signaled it was buying government bonds in response to a deepening European debt crisis. [ID:nLDE77309J] In Japan, the government intervened in currency markets to stem recent gains in the yen.
"You can pick your story for why we're seeing continued pressure. Europe is probably the most prevalent one today, but there's the whole unfortunate process with the debt ceiling, combined with weak economic numbers here and abroad. That makes for a perfect storm for stocks," said Walter Todd, who helps manage $950 million at Greenwood Capital in Greenwood, South Carolina.
A series of breaks in technical support suggests further losses, according to market technicians.
"It doesn't look good," said John Kosar, director of research at Asbury Research in Chicago. "Frankly, you have to look pretty hard to find anything technically that looks constructive."
He sees another 5 percent to 8 percent in losses in the S&P 500 from this point. (Reporting by Caroline Valetkevitch; Additional reporting by Richard Leong; Editing by Kenneth Barry)