• Steep Drop: Dow plummets 268 points
• Jobs Data: New claims rise unexpectedly
• Euro Zone: Debt woes increase for Portugal, Greece
• Cisco Hits: Profits up sharply

The Lowdown

Stocks dropped sharply Thursday as concerns over unemployment and national debts of some European countries outweighed an upbeat earnings report from Cisco Systems (CSCO) and better-than-expected January sales from a number of U.S. retailers.

The Dow Jones Industrial Average plunged 268 points, or 2.6%, to end the day at 10,002, the lowest close since Nov. 4. The broader indexes suffered comparably heavier losses. The Nasdaq dropped 65, or nearly 3.0%, to finish the day at 2,125. The S&P 500 slid 34, or 3.1%, to end at 1,063.

Alcoa (AA) was the worst Dow performer, sinking early as metals futures fell. General Electric (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 1/4 to yield 3.676%.

The action came as fiscal worries intensified Thursday. The cost of insuring the debt of euro-zone 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.

Corporate News

• Macy's (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.
• Abercrombie & Fitch (ANF) jumped after the teen retailer, which has struggled during the recession, posted growth of 8% for January same-store sales, when analysts expected a 8.4% drop.

The Economy

• 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 10,0000. The four-week moving average, which aims to smooth volatility in the data, also increased for the week ending Jan. 30.
• Separate data released Thursday showed nonfarm business labor productivity rose by a seasonally-adjusted annual rate of 6.2% in the October-to-December period, slightly below the 7% increase that was expected. Meanwhile, unit labor costs, a measure of what it costs firms to pay workers for a single unit of output they produce, fell at a 4.4% annual rate in the last three months of 2009. Economists had forecast a 3.5% drop.
• Thursday's spike in claims comes just one day before the Labor Department is slated to release its January jobs report. Economists expect nonfarm payroll numbers to remain flat, although they are also forecasting a slight increase in the unemployment rate from 10 to 10.1%.

Dow Jones Newswires contributed to this report.