Rising Dollar, Jobless Claims Push Markets Lower

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The strengthening dollar and an unexpected rise in unemployment fueled a loss of more than 1% across all the major indexes on Thursday. The U.S. dollar moved to a three and a half month high against a basket of foreign currencies, which signaled traders that there could be lower profit potential for U.S. companies, especially those with interests overseas. The Dow Jones Industrial Average dropped 132.86 points or 1.27% to 10,308.26. The broad market S&P 500 lost 13.11 points or 1.18%, falling to 1,096.07. The tech heavy Nasdaq was off 26.86 or 1.22% at 2,180.05.
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With the dollar moving 1.2% higher on the ICE Futures U.S. dollar index, pressure was placed on commodity stocks and financials, which were two of the hardest hit sectors. FedEx (FDX), which relies on oil, fell nearly 6% after the company announced a disappointing 2010 forecast, suggesting the recovery was further off than previously thought. Shares of Citigroup (C) plunged 7.8% as it sold shares to help repay its TARP loan obligation to the government.

Adding to those pressures, initial jobless claims for U.S. state unemployment benefits climbed 7,000 to a seasonally adjusted 480,000 last week, a downward revision from the 473,000 reported the week prior. The market was spooked because this was the second consecutive week that initial claims rose.

The unemployment numbers seemed to confirm the Federal Reserve's observations about the reluctance of companies to hire workers which were made on Wednesday after it announced it would leave interest rates unchanged near zero for "an extended period."

Even with the negative news, "The trend in initial jobless claims is heading lower," said Zach Pandl, an economist at Nomura Securities in New York in a Reuters' report. "Our initial guess is that we'll have ... employment growth for the first time when the current month is reported in January."

Also on the bright side, U.S. Conference Board's Leading Economic Index increased 0.9% in November to 104.9 after rising an unrevised 0.3% in October, giving the market hope that economic conditions were still improving, even though at a very slow pace.

Also on the day, oil prices fell just five cents to $72.61 a barrel, and gold continued to lose ground, dropping $39.00 to fall below the $1,100 mark at $1,096.50 an ounce at closing.
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