NEW YORK - US stocks slumped on Thursday, ending a two-day rally, as investors weighed a disappointing growth report on the US economy and a surprising rise in weekly unemployment claims.

The Dow Jones Industrial Average plunged 205.67 points, 1.78 per cent, to close at 11,378.02 and the tech-heavy Nasdaq composite fell 4.17 points, 0.18 per cent, to 2,325.55.

The broad-market Standard & Poor's 500 index dropped 16.88 points, 1.38 per cent, to finish at 1,267.38.

But the second-quarter expansion missed market expectations of 2.3 per cent growth.

In addition, the department revised the first-quarter growth down by 0.1 percentage point, from 1.0 per cent, and lowered 2007 fourth-quarter growth to a 0.2 per cent contraction from a prior estimate of a 0.6 per cent gain.

It was the first time the US economy has slid into the red since the 2001 recession.

'The second-quarter headlines, coupled with the downward revision of fourth quarter GDP to a negative 0.2 per cent, and the downward revision to first quarter GDP to 0.9 per cent, are being viewed understandably in a negative light by the market,' analysts at Briefing.com wrote in a client note.

A surprising jump in weekly unemployment figures also rattled investors.

The Labor Department reported unemployment benefits claims rose by 44,000 in the week ended July 26, to 448,000, the sharpest rise in five years.

Most analysts expected jobless claims to fall by 9,000.

The weekly numbers are often volatile, nevertheless, the report raised concerns that Americans will tighten their belts and curb the consumer spending that fuels two-thirds of the US economy.

The report came ahead of Friday's July payrolls data. Most analysts expect a loss of 75,000 jobs and the unemployment rate to tick up to 5.6 per cent. In June the economy shed non-farm jobs for a sixth straight month and the jobless rate held steady at 5.5 per cent. -- AFP

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