NEW YORK: US stocks dropped on Thursday as an unexpected rise in weekly jobless claims compounded fears of a stalling economic recovery against the backdrop of dimming hopes for more fiscal aid before the election.

Initial claims for state unemployment benefits totalled a seasonally adjusted 898,000 for the week ended Oct. 10, compared to 845,000 in the prior week, the Labour Department said on Thursday. Economists polled by Reuters had forecast 825,000 applications in the latest week.

The CBOE volatility index, investors' fear gauge, hit a one-week high and Wall Street's indexes fell for the third straight day. The S&P 500 is now nearly 4% below its intraday record high hit on Sept. 2, after rising to within 1% of that level earlier this week.

Morgan Stanley edged 1.5% higher after it beat third-quarter profit estimates, winding up mixed results from major US lenders. The earnings reports saw those focused on trading clocking big gains, while retail banks took a hit from the COVID-19 pandemic.

Financial stocks added 0.2%, while communication services and technology shares posted the steepest losses among S&P sectors. At 12:35 p.m. ET, the Dow Jones Industrial Average was down 140.43 points, or 0.49%, at 28,373.57, the S&P 500 was down 27.98 points, or 0.80%, at 3,460.69. The Nasdaq Composite was down 151.04 points, or 1.28%, at 11,617.69.