The Nasdaq composite index fell 17.04, to 1,842.97, and the Dow Jones industrial average lost 47.75, to 10,229.15.
The Nasdaq's performance this week continues to bewilder analysts: After plunging on Tuesday's news that the Fed made a much-expected quarter-point cut to interest rates, the index has been on a roller-coaster ride. It began Thursday with losses.
In other economic news, the Labor Department released a report on initial jobless claims. It showed that the number of filings for state jobless benefits rose higher than expected. The Dow and the Nasdaq, which futures indicated would open lower, sank after the news was released.
Claims rose to 393,000 for the week ended Aug. 18, up from a revised 385,000 in the previous week, and more than the rise to 389,000 analysts had expected. The number of people who remained on the unemployment rolls also rose to its highest level in nearly nine years.
"The labor market continues to show signs of stabilizing," wrote Merrill Lynch analyst Bruce Steinberg in response to the report. Though the number of claims was up, Steinberg noted that the rise in initial claims was "modest" and the jump in continuing jobless benefits was "mostly due to a run-up last winter, as the rate of ascent has slowed significantly since April."
Friday's durable-goods orders will be the next big reading on the economy. Orders are predicted to decline 1 percent, in contrast to 2 percent in the last report, which would be another sign that capital spending is weak.
Among active stocks Thursday, ADC Telecom fell 22 cents, to $4.18, VA Linux lost 13 cents, to $1.73 and Novell fell 27 cents, to $4.30, ahead of their quarterly reports, due out after the closing bell.
Ciena shares, which had been punished for lowered forecasts for 2001 and 2002 last week, rose 36 cents, to $17.80, after Standard & Poor's said it would add the communications-equipment maker to the S&P 500 index. A separate report also said sales of gear for building out optical networks are expected to be $10.3 billion this year.
Gateway shares fell $1.18, or 12 percent, to $8.61 after Standard & Poor's cut the company's credit rating to junk status Wednesday.
Siebel Systems was off $1.09, or 8 percent, to $21.90 after Prudential Securities initiated coverage of the stock with a "hold" rating. PeopleSoft, which received a "buy" rating, was down $1.45, to $35.20.
Semiconductor-equipment maker Synopsys was another steep decliner. It was down $4.90, to $46.25, after reporting a sharp decline in third-quarter earnings and warning that earnings for 2001 and 2002 would fall short because of a sharp downturn in spending by its customers.
Among other heavily traded techs, Intel lost 29 cents, to $27.67, Microsoft fell $1.54, to $59.12, Oracle fell 63 cents, to $14.01, Cisco Systems rose 28 cents, to $16.76, and Sun Microsystems rose 14 cents, to $13.82.
Amazon.com fell 57 cents, to $9.63, AOL Time Warner rose 58 cents, to $40.08, and Yahoo lost 14 cents, to $13.26.
Staff and Reuters contributed to this report.