U.S. stocks fell Thursday after a report said factory activity contracted in the U.S. Mid-Atlantic region in September for the first time in over three years, prompting worries about a slowdown in the U.S. economy and corporate profits.

The Dow Jones industrial average was down 79.96 points, or 0.69 percent, to end at 11,533.23. The Standard & Poor's 500 Indexwas down 7.15 points, or 0.54 percent, to finish at 1,318.03. The Nasdaq Composite Index was down 15.14 points, or 0.67 percent, to close at 2,237.75.

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Drugstore stocks fell sharply after Wal-Mart Stores Inc. (WMT) said it would cut generic drug prices in Florida.

Hewlett-Packard Co. (HPQ), the computer and printer maker, fell after news reports said its chief executive may have been more closely involved in an investigation of leaks to the media than had been previously reported.

"I don't think the question anymore should be whether the economy is slowing. It really should be the degree to which it will slow," said Neil Wolfson, president of Wilmington Trust Investment Management in New York. "The Philly Fed index declined much more than was expected. That is a sign that manufacturers are cutting back, which could be due to the view that consumers will be slowing down."

Only nine of the Dow's 30 components finished higher.

Shares of H-P lost 5.2 percent, or $1.91, to $34.87 on the New York Stock Exchange. H-P was the top drag on both the Dow and S&P 500.

Wal-Mart's move threatened to lure customers away from pharmacy chains such as Walgreen Co. (WAG) and CVS Corp. (CVS), whose shares have climbed steadily since summer as consumer staples came back into favor.

Shares of Walgreen, the No. 1 U.S. drugstore chain, dropped 7.4 percent, or $3.67, to $46.28, while shares of CVS, the No. 2 drugstore chain, slid 8.4 percent, or $2.96, to $32.47. Rite Aid Corp., ranked No. 3, fell 5 percent, or 24 cents, to $4.52 and Longs Drug Stores Corp. shares fell 4.3 percent, or $2.04, to $46.01.

Wal-Mart shares slipped 0.8 percent, or 41 cents, to $48.46.

The Philadelphia Fed survey added to concerns raised in an earlier report from the Conference Board, which said its index of leading economic indicators, a key forecasting gauge for the economy, fell in August to its lowest level in nearly a year.

"If the economy slows, the profits will slow, and the equities will move accordingly," said Milton Ezrati, senior economic strategist at Lord Abbett & Co. in Jersey City, New Jersey.

Adding to worries about the strength of consumer spending and corporate profits was the climb in U.S. lead-month crude oil futures prices, which rose more than 1 percent in a rebound on technical factors after hitting a six-month low Wednesday.

Exxon Mobil Corp.'s stock , up 1.1 percent, or 67 cents, at $64.78, was the top gainer in both the Dow and the S&P 500 as higher crude prices could boost oil companies' profits. Shares of rival Chevron Corp. (CVX) fell 1.9 percent, or $1.17, to $62.05, while the stock of ConocoPhillips (COP), another major oil company, lost 1.7 percent, or 96 cents, to $58.21.

U.S. crude oil for November delivery rose 85 cents to settle at $61.59 a barrel, off a session high at $61.80.

The Nasdaq's biggest percentage losers included shares of interactive content provider Infospace Inc. , down nearly 22 percent, or $4.93, at $17.68 after the company said its revenue and operating results would be hurt by a partner's plans for direct licensing deals with record labels early next year.

Tech-related shares fell broadly, with International Business Machines Corp. (IBM) down 2.2 percent, or $1.81, at $81.61 on the NYSE, and Apple Computer Inc. (AAPL) off almost 1 percent, or 61 cents, at $74.65 on the Nasdaq. IBM ranked as the second-biggest drag on the Dow, behind H-P, while Apple was the heaviest weight on the Nasdaq 100.

Trading was active on the New York Stock Exchange where about 1.68 billion shares changed hands, just above the 1.61 billion daily average for last year. On Nasdaq, about 2.03 billion shares traded, above last year's daily average of 1.80 billion.

Declining shares beat advancers by a ratio of about 3 to 2 on the NYSE and, on Nasdaq, by about 9 to 5.

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