Major indexes decline as nervousness about the economy puts the brakes on a recent rally. The dollar firms; tech sector hurt by downgrade

NEW YORK (CNNMoney.com) — Stocks tumbled for the second day in a row Thursday as concerns about the economic recovery resurfaced, the dollar strengthened and the outlook for the technology sector darkened.

The Dow Jones industrial average (INDU) fell 94 points, or 0.9%, to 10,332.4. The S&P 500 (SPX) sank 1.3% to end below the key 1,100 point level. The Nasdaq composite (COMP) lost 36 points, or 1.6%, to close at 2,156.82.

Tech shares led decliners after analysts at Bank of America Merrill Lynch downgraded the semiconductor industry. Chip makers Intel (INTC, Fortune 500) and AMD (AMD, Fortune 500) both fell more than 3%.

The downgrade came one day after two key software companies issued bearish profit outlooks.

After the closing bell, Dell Inc. reported third-quarter results that fell far short of analysts’ expectations.

“The market is rethinking its outlook for technology growth,” said Nick Kalivas, vice president of financial research at MF Global.

Meanwhile, the dollar firmed against rival currencies and prices for U.S. Treasurys rose as investors flocked to assets that are considered safe havens.

The stronger dollar weighed on the oil market, which undermined shares of energy producers Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500).

Gold prices recovered from earlier losses to close at a fresh all-time high.

“I think people are playing defense,” Kalivas said. “The economic data we’ve seen recently doesn’t encourage people to take on more risk in their portfolios.”

Analysts said a move lower was not surprising after stocks surged to a 13-month high earlier in the week.

“I think a lot of people are concerned that we’ve come too far, too fast,” said Russell Lundeberg Jr., chief investment officer at Barrett Capital Management.

Meanwhile, investors continued to focus on the the plight of the dollar, which has shown some signs of strength recently after Federal Reserve officials — including chairman Ben Bernanke — indicated that the central bank is monitoring the currency’s decline.

“The market has definitely been trading off the dollar recently,” said Ron Kiddoo, chief investment officer at Kozad Asset Management. “I think the stronger dollar is a bigger factor than the jobless claims.”

A weekly government report showed the number of Americans filing first-time claims for unemployment benefits was unchanged from the preceding week.

Stocks ended lower Wednesday after government data showed a drop in new home construction.

The surprisingly weak housing report was the latest in a string of less-than-stellar economic indicators that have put many market participants on edge. Investors are now looking for more concrete evidence of improvement in the job market, retail sales and corporate profits.

“Overall, it’s not surprising that people are getting nervous,” said Lundeberg. “We still have a long way to go in the recovery.”

Analysts said the volume of shares trading hands recently has been low, suggesting that many big investment funds have moved to the sidelines to protect gains before publishing their year-end reports.

Economy: The Labor Department released its weekly report on initial jobless claims, showing that the number of claims was unchanged from the prior week.

The government said that jobless claims totaled 505,000 in the week ended Nov. 14. This was very close to the forecast of 504,000 claims, according to a consensus of economist opinion compiled by Briefing.com.

A report on leading economic indicators showed an increase of 0.3% in October, below the 0.4% forecast and the 1% rise in September. The Philadelphia Federal Reserve survey, a reading on regional manufacturing, rose slightly.

Companies: Dell (DELL, Fortune 500) said net income fell 54% to $337 million, or 17 cents per share, for the quarter ended Oct. 30. Results included charges of 6 cents per share for cost cutting and other one-time expenses.

Without the charges, the PC maker said it earned 23 cents per share. Analysts polled by Thomson Reuters had forecasted adjusted earnings of 28 cents per share.

Retail apparel maker Gap Inc. (GAP, Fortune 500) reported quarterly results that were in line with analysts’ expectations. The company said after the closing bell that net income rose by 25% in the quarter on improved profit margins and strong sales at its discount chain Old Navy.

Sears Holdings (SHLD, Fortune 500) posted a narrower-than-expected quarterly loss of $127 million, or $1.09 a share, an improvement from the loss of $146 million, or $1.16 a share, a year earlier. Results were helped by the first increase in same-store sales at its Kmart unit in four years.

JPMorgan Chase (JPM, Fortune 500) said Thursday it was buying the half of U.K. broker Cazenove that it does not already own for about $1.67 billion.

World markets: Asian shares mostly fell. Japan’s Nikkei tumbled 1.3%. Major European indexes were also closed lower, with the CAC-40 in Paris falling 1.8%.

Money, oil and gold: The dollar was up against all major currencies except the yen. The dollar index (DXY), which gauges the U.S. currency against a basket of rivals, rose 0.2% to 75.32.

The price of oil fell $2.12 to settle at $77.46 a barrel.

The price of gold recovered from earlier losses to settle at a record high of $1,141.90 per ounce, up 70 cents from the previous day’s closing price.

Bonds. Treasury prices rose. The yield on the benchmark 10-year note, which moves inversely to its price, fell to 3.34% from 3.36% late Wednesday.