Stocks and most exchange-traded funds dropped sharply Thursday as concerns over unemployment and national debts of some European countries outweighed an upbeat earnings report from (CSCO) and better-than-expected January sales from many retailers.

The Dow Jones Industrial Average closed down 268, down to 10002. The Nasdaq shed 65 to 2125. The S&P 500 slid 34 to 1063.

U.S. economic data released Thursday morning added to investors' jitters. The Labor Department said initial claims for jobless benefits rose by 8,000 last week. Economists had expected a decrease of 10,000. The four-week moving average, which aims to smooth volatility in the data, also increased for the week ending Jan. 30.

Alcoa (AA) was the worst Dow performer sinking early as metals futures fell. (GE) was also particularly weak. Cisco was the Dow's only component in the black, up 2% after the big maker of networking gear reported a 23% profit rise and said current quarter sales may grow as much as 26%. The company also plans to hire 2,000 to 3,000 workers over the next few quarters.

In other markets, the dollar was higher against the euro as the euro hit a seven-month low against the dollar. The dollar was lower against the yen. Treasurys edged higher with the 10-year note up to yield 3.59%.

The heavy selling came as fiscal worries intensified Thursday. The cost of insuring the debt of eurozone members with large budget deficits against default rose, dashing hopes that the European Commission's qualified endorsement of Greece's budget plan would calm investor fears. The concerns followed news that the European Commission had put Greece under more pressure to cut its deficit; that the Portuguese government sold only 300 million ($417 million) of Treasury bills at an auction compared with an indicative offer of 500 million; and that the Spanish government had raised its budget deficit forecasts for 2010 through 2012.

Data on U.S. factory orders showed shipments of all factory goods increased 1.9% while inventories fell 0.1%. November's orders were revised down to 1% from 1.1% earlier.

(M) jumped after the department-store operator reported better-than-expected fiscal fourth-quarter sales as its strategy to localize products in its stores has paid off, leading it to lift its earnings target. (ANF) jumped after the teen retailer, which has struggled during the recession, posted growth of 8% for January same-store sales when analysts expected an 8.4% drop.

For a detailed rundown on Thursday s trading session see our market story.

Winners

The big market swing pushed up shares of the S&P 500 VIX Short-Term Futures Index fund by 11%. The Short S&P 500 ProShares picked up 3.1% as the market plunged.

Losers

The Market Vectors--Junior Gold Miners fund slid 7.3% as metals futures plunged on the rising dollar. The SPDR S&P Metals & Mining fund slid 7.0%.

Thursday s Industry Headlines

Data Point

State Street Global Advisors, the investment management business of (STT), said in its 2009 "Exchange-Traded Funds (ETFs) Year-End Review and 2010 Outlook" report that last year was the third consecutive year in which ETF net inflows exceeded $100 billion. Investors moved away from large cap U.S. equities, developed international equities, and increased their exposure to ETFs linked to defensive asset classes, including gold, investment grade corporate bonds and U.S. Treasury Inflation Protected Securities. Tom Anderson, director of strategy and research for the intermediary business group at State Street, said U.S. ETF assets are projected to reach the $1 trillion mark in 2010.

Demand for metals has progressed to the point where ETF Securities USA announced on Thursday that the total assets under management of its four products -- (SGOL), (SIVR), (PPLT) and (PALL) -- exceed $1 billion as of Jan. 27, 2010. These physical metals funds have been popular with investors who do not want to buy actual commodities. The ETFS Physical Swiss Gold Shares now has $336 million in assets under management; the ETFS Physical Silver Shares now stands at $129 million; the ETFS Physical Platinum Shares now stands at $372 million; and the ETFS Physical Palladium Shares AUM now stands at $170 million.

Friday s Notebook

Earnings and Conference Calls

Aceto, Aeolus Pharmaceuticals, Aetna, Allegheny Energy, American Axle & Manufacturing Holdings, Aon, Apartment Investment & Management, Beazer Homes USA, Brookfield Properties, Brooks Automation, CNA Surety, Empire District Electric, Exide, Genpact, ICO, Imperial Sugar, K12, Kelly Services, Kimball International, Magnetek, MEDNAX, Minerals Technologies, Nippon Telegraph and Telephone, Panasonic, PPL, Prestige Brands Holdings, Sensient Technologies, Simon Property Group, Spectra Energy Partners, Syngenta, TECO Energy, Tree.com, Tyson Foods, Viad, Weyerhaeuser, YRC Worldwide

Economic Data

8:30 a.m. Employment Situation
3:00 p.m. Consumer Credit