US STOCKS-Wall St drops after surprise rise in jobless claims, stimulus impasse

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* Walgreens rises on 2021 profit growth forecast
* CBOE volatility index hits one-week high
* Weekly jobless claims unexpectedly rise in latest week
* Indexes down: Dow 0.49%, S&P 0.80%, Nasdaq 1.28%

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By Medha Singh and Shivani Kumaresan
Oct 15 (Reuters) - U.S. stocks dropped on Thursday as an
unexpected rise in weekly jobless claims compounded fears of a
stalling economic recovery against the backdrop of dimming hopes
for more fiscal aid before the election.
Initial claims for state unemployment benefits totaled a
seasonally adjusted 898,000 for the week ended Oct. 10, compared
to 845,000 in the prior week, the Labor Department said on
Thursday. Economists polled by Reuters had forecast 825,000
applications in the latest week. A separate report showed manufacturing activity in New York
State fell more than expected in October. "Going into the fall it will be difficult for unemployment
to make a lot of positive headway because of the lack of
stimulus," said Christopher C. Grisanti, chief equity
strategist, MAI Capital Management in Cleveland.
A day after Treasury Secretary Steven Mnuchin said a deal on
more federal aid was unlikely before the Nov. 3 presidential
election, President Donald Trump said there was still a chance.
The CBOE volatility index .VIX , investors' fear gauge, hit
a one-week high and Wall Street's indexes fell for the third
straight day. The S&P 500 is now nearly 4% below its intraday
record high hit on Sept. 2, after rising to within 1% of that
level earlier this week.
With less than 20 days to Election Day, Trump and Democratic
challenger Joe Biden will hold dueling prime-time town halls on
Thursday instead of their second presidential debate, which was
canceled after Trump declined to take part in a virtual matchup.
Focus is also on the quarterly results for corporate
America, with expectations for third-quarter earnings improving
to an 18.8% drop from a 25.0% tumble forecast on July 1,
according to Refinitiv IBES data.
Morgan Stanley MS.N edged 1.5% higher after it beat
third-quarter profit estimates, winding up mixed results from
major U.S. lenders. The earnings reports saw those focused on
trading clocking big gains, while retail banks took a hit from
the COVID-19 pandemic. Financial stocks added 0.2%, while communication services
.SPLRCL and technology .SPLRCT shares posted the steepest
losses among S&P sectors.
At 12:35 p.m. ET, the Dow Jones Industrial Average .DJI
was down 140.43 points, or 0.49%, at 28,373.57, the S&P 500
.SPX was down 27.98 points, or 0.80%, at 3,460.69. The Nasdaq
Composite .IXIC was down 151.04 points, or 1.28%, at
11,617.69.
Walgreens Boots Alliance Inc WBA.O gained 2.7% as the
drugstore chain forecast profit to grow in single digits in 2021
after reporting a better-than-expected fourth-quarter profit.
The S&P 1500 airlines index .SPCOMAIR shed 2.2% as United
Airlines UAL.O reported a 78% drop in quarterly revenue.
Shares of drug developer Vertex Pharmaceuticals Inc VRTX.O
sank 20.2% after it discontinued its trial of a protein
deficiency disorder treatment.
Declining issues outnumbered advancers for a 1.81-to-1 ratio
on the NYSE and for a 1.82-to-1 ratio on the Nasdaq.
The S&P index recorded two new 52-week highs and no new low,
while the Nasdaq recorded 31 new highs and 26 new lows.