Stocks dropped on Thursday, taking the S&P 500 down 10 percent from its May high, on escalating worries about the economy.

All three indexes fell 2 percent, with declining stocks beating advancers on the New York Stock Exchange by nearly 13 to 2.

The (economic) numbers are not coming in favorably. They haven't been, and this is a reaction to all of that. We're in a major correction... said Joseph Cangemi, managing director at BNY ConvergEx Group in New York.

The day's drop follows a string of declines for the market as investors worried about the outcome of talks to cut budget deficits in Washington, increasing evidence of U.S. economic weakness and a spreading debt crisis in Europe.

The S&P 500 fell for 7 straight days before rebounding Wednesday. Its losses since its May 2 high have now reached more than 10 percent, putting it in correction territory. The CBOE Volatility index <.VIX> jumped to its highest since March.

First-time claims for unemployment benefits edged down to 400,000 last week, the Labor Department said.

The figure comes a day before the government's monthly payrolls report, one of the most closely watched numbers measuring the U.S. economy.

Energy and materials shares led losses on the S&P 500, with the S&P energy index <.GSPE> and materials index <.GSPM> each down more than 3 percent.

The Dow Jones industrial average <.DJI> was down 242.19 points, or 2.04 percent, at 11,654.25. The Standard & Poor's 500 Index <.SPX> was down 29.63 points, or 2.35 percent, at 1,230.71. The Nasdaq Composite Index <.IXIC> was down 71.04 points, or 2.64 percent, at 2,622.03.

A series of breaks in technical support suggest further losses, according to market technicians.

Frankly, you have to look pretty hard to find anything technically that looks constructive, said John Kosar, director of research at Asbury Research in Chicago.

Overseas, the European Central Bank signaled it was buying government bonds in response to a deepening European debt crisis.

(Reporting by Caroline Valetkevitch; Additional reporting by Ryan Vlastelica and Chuck Mikolajczak; Editing by Kenneth Barry)