NEW YORK (CNN/Money) - Blue-chip stock losses accelerated at midday Thursday as signs of economic weakness resurfaced and questions were raised about the quality of General Electric debt.

At 12:38 p.m. ET, the Dow Jones industrial average lost 130.85 to 10,370.72. The Nasdaq composite fell 0.73 to 1,832.14. The Standard & Poor's 500 gave back 10.22 to 1,141.63.

The latest indication that the economic recovery may not be a smooth path upward was the Federal Reserve Bank of Philadelphia's report on manufacturing, which showed a decline to 11.4 in March from 16 in February. The regional index was expected to rise to 18.

The Conference Board's report on leading economic indicators was unchanged in February after rising 0.6 percent in January. LEI had been up for four straight months prior to Thursday's report. Economists had been looking for a 0.1 percent rise.

The reports put a crimp in the notion that the economy is recovering from its recent downturn. Speculation about a rebound has fueled stock gains since the week after the Sept. 11 terrorist attacks.

"We're in a scaling back mode after two or three weeks of gains. We need some kind of economic data point to push us higher," said Alfred Kugal, senior investment strategist with Stein, Roe & Farnham. "This may go one for a few sessions, but the fundamentals overall are good."

There were some positive signs. The Labor Department said the Consumer Price Index, the main inflation gauge, rose only a modest 0.2 percent in February after rising 0.2 percent in January, in line with estimates. Excluding the volatile food and energy sectors, the core CPI rose 0.3 percent, a little higher than what economists were expecting.

In addition, the number of Americans filing new jobless claims declined last week to 371,000 from a revised 383,000 claims the previous week, showing a bigger decline than analysts expected.

Shares of General Electric (GE: down $1.72 to $37.08, Research, Estimates) also pressured the Dow following news that Bill Gross, manager of the prominent PIMCO bond fund, is critical of the company, saying he will not buy GE's short-term debt. PIMCO has also reportedly dumped $1 billion of GE debt in recent days.

Treasurys were a little lower, pushing the ten-year note yield up to 5.44 percent.

Markets in Europe were mixed in late trade, while Asian markets closed lower on tech weakness. The dollar was stronger against both the yen and the euro. Light crude oil futures fell 17 cents to $24.78 a barrel in New York.

Market breadth was mixed. On the New York Stock Exchange, decliners beat advancers 3-to-2 as 673 million shares traded. On the Nasdaq, losers topped winners 8-to-7 as 812 million shares changed hands.

Gains in biotech and networking issues kept the Nasdaq in the black, tempering some losses in telecom and Internet names, while particularly weak Dow issues included American Express (AXP: down $1.47 to $40.37, Research, Estimates) andInternational Paper (IP: down $1.20 to $43.15, Research, Estimates).

Lehman Brothers lowered its first-quarter revenue estimate on CNN/Money parent AOL Time Warner (AOL: down $1.01 to $24.19, Research, Estimates), citing concerns about a depleted advertising spending environment. The firm expects the media company to take in $9.4 billion, down from its original estimate of $9.7 billion.

Morgan Stanley upgraded biotech developer Protein Design Labs (PDLI: up $2.55 to $17.57, Research, Estimates) to "overweight" from "underweight" a day after the company said its psoriasis treatment failed to meet its main goals in trial. The firm said the failure removes a dark cloud that's been hanging over the stock for the last month, creating an attractive entry point. However, UBS Warburg cut the company's price target, and second, third and fourth-quarter earnings per share estimates.

J.P. Morgan lowered its second and third-quarter results forecasts on Apple Computer (AAPL: down $1.20 to $23.72, Research, Estimates) saying the personal computer maker raised the price on its iMac desktop computer by $100 due to rising component costs.

Shares of PeopleSoft (PSFT: down $0.61 to $35.44, Research, Estimates), a business software maker, were under pressure after a Wall Street Journal article rehashed earlier concerns about the company's relationship with Momentum Business Applications. Following the report, CIBC World Markets issued a note defending the company, saying nothing new has been revealed and that they expect the company to meet guidance.

Goldman Sachs downgraded drug store chain Rite Aid (RAD: down $0.26 to $3.36, Research, Estimates) to "market perform" from "market outperform," saying that based on its evaluations, the company's shares should only see upside of between 2 percent and 3 percent in the next 12 months.