Stocks slid in a broad sell-off on Thursday as investors, concerned about the U.S. budget deficit, exited dollar-denominated assets across the board.

Markets came under severe selling pressure as a result of an outlook downgrade for the U.K.'s triple-A credit rating heightened fears that the United States, with its increasing budget deficit and weakened economy, could face a similar fate.

The activity was unusual in that the sell-off in U.S. stocks did not produce a flight to assets typically considered havens in a storm -- notably the U.S. dollar and the U.S. government bond market. Instead, those markets also weakened for similar reasons.

Bill Gross, the co-chief investment officer of the huge bond firm, Pacific Investment Management Co., said fears that the United States is at risk of losing its AAA credit rating were hurting all U.S. assets. Gross told Reuters via e-mail that investors fear the United States is going the way of the U.K. -- losing AAA rating, which affects all financial assets and the dollar as governments around the world spend billions to revive growth.

Shares of big manufacturers dropped, with United Technologies Corp falling 1.9 percent to $50.76, while Boeing Co shed 2.9 percent to $43.29. The big U.S. aircraft maker left its full-year forecast unchanged on Thursday.

The Dow Jones industrial average <.DJI> dropped 129.91 points, or 1.54 percent, to 8,292.13. The Standard & Poor's 500 Index <.SPX> fell 15.14 points, or 1.68 percent, to 888.33. The Nasdaq Composite Index <.IXIC> lost 32.59 points, or 1.89 percent, to 1,695.25.

Elsewhere, U.S. Treasuries plunged after the government said it would sell a massive amount of new debt next week, while earlier in the day, the U.S. dollar fell to its lowest level this year against a basket of currencies.

Investors also beat up technology shares. Apple Inc was the Nasdaq's top drag, down 1.3 percent at $124.18. Tech companies' fortunes are closely linked to a growing economy.

U.S. government data showed ongoing claims rose to a fresh record as the recession battered employment, but the number of workers filing new claims for jobless benefits declined 12,000 last week.

The Philadelphia Fed's survey of manufacturing conditions for the U.S. mid-Atlantic region contracted in May for the eighth straight month, but the deterioration improved slightly from April.

This market really has jumped on the basis that possibly

the recession could end sometime later this year or early next year, said Peter Lewis, fund manager at Murphy Capital Management, in Gladstone, New Jersey.

But we have to strip away the fact and realize these reports are still bad, and by no means is this market ready to take off.

The economic data came one day after the U.S. Federal Reserve offered a more pessimistic view for economic recovery, deflating some of the optimism that had underpinned the stock market's recent rally from 12-year lows in early March.

The S&P rallied 37.4 percent from its bear market closing low in early March to a peak on May 8, but it has now retraced some of those gains amid concerns about the economy and a series of large secondary stock offerings from banks. The index is now up 31 percent from its low set on March 9.

Trading was moderate on the New York Stock Exchange, with about 1.44 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.25 billion shares traded, below last year's daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by more than 2 to 1, while on the Nasdaq, almost three stocks fell for every one that rose.

(Reporting by Edward Krudy; Editing by Jan Paschal)

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