NEW YORK (CNN/Money) - Weak reports on manufacturing and labor knocked stocks lower Thursday, as investors grew increasingly concerned about the slowdown in the economic recovery and its impact on equities.

Disappointing second-quarter results from oil company Exxon Mobil added to the bulls' despair, particularly for the Dow Jones industrial average, which was vulnerable to sharp selling after running up more than 1,000 points during the past six trading sessions.

The Dow lost 229.97, or 2.6 percent, to close at 8,506.62. The Nasdaq composite fell 48.26, or 3.6 percent, to 1,280.00. The Standard & Poor's 500 dipped 26.96, or just under 3 percent, to 884.66.

The manufacturing report also sent the dollar reeling, adding to stock volatility, as the U.S. currency posted a sharp loss against the euro and a more modest decline versus the yen.

After the close of trade, Dow component and entertainment conglomerate Walt Disney (DIS: down $0.90 to $16.83, Research, Estimates) reported a fiscal third-quarter profit of 17 cents per share, in line with estimates but weaker than what it earned in the same period a year ago. For the current quarter, the company warned that per-share results should be lower than the 13 cents earned in the year-earlier period, also below current estimates.

In addition, chipmaker National Semiconductor (NSM: down $0.98 to $17.13, Research, Estimates) warned that weak personal computer spending will hurt its current-quarter revenue.

On Friday, investors will take in the highly anticipated July unemployment data. The unemployment rate, due from the Department of Labor, is expected to remain steady at 5.9 percent, while employers are expected to have added 60,000 new jobs to their payrolls after adding 36,000 in the previous month.

"The market will be looking for a flat unemployment number and a small tick up in jobs, and if the market doesn't get that, it's gonna feel it," Peter Canelo, president of Peter Canelo & Associates, told CNNfn's Street Sweep.

Economic reports on personal spending and personal income, as well as factory orders, are also due out Friday.

On Thursday, the Institute of Supply Management's closely watched monthly manufacturing index showed a decline in July to 50.5 from 56.2 a month earlier. That put the index just barely above 50, which signals expansion in the sector. Economists were expecting a reading of 55.

"We saw a run-up near the close of the last session, so you're seeing some selling off of that, not to mention the huge rally in the last week. In addition, the economic data we've seen for July hasn't been very good" said Mike Farrell, head of asset allocation at David L. Babson.

"You had ISM this morning and Chicago PMI yesterday [Wednesday] as well as weak gross domestic product," Farrell said. "Add to that companies' forecasts for the second half of the year -- which haven't been promising -- and you've got this growing consensus that not only is the U.S. economy weak, but globally, as well."

In addition, the government's June reading on construction spending showed a decline of 2.2 percent, compared with a revised 0.2 percent decline in May. Economists surveyed by Briefing.com expected a rise of 0.2 percent.

The number of Americans filing new claims for unemployment rose to 387,000 last week from a revised 367,000 in the previous week, the Labor Department said. Economists surveyed by Briefing.com were expecting 385,000 new claims.

In corporate news, oil producer and Dow component Exxon Mobil (XOM: down $3.11 to $33.65, Research, Estimates) reported lower second-quarter earnings that missed estimates due to a decline in its oil exploration business.

Cisco Systems (CSCO: down $1.09 to $12.10, Research, Estimates) was the Nasdaq's most active stock and may have been sharply lower on vague rumors, according to Briefing.com.

Talk ranged from executive changes, to missing estimates when it reports results next week, to company officials refusing to sign off on the financial statements ahead of the crucial Aug. 14 deadline. But analysts dismissed the rumors as empty chatter.

"I would be extremely skeptical of anything like this flying around," said Raj Srikanth, a managing director at Deutsche Bank who covers Cisco. "My sense is that the company will sign off on its numbers [in September], that it will meet estimates when it reports Tuesday, and that there are no big executive changes planned."

In addition, shares of Adobe Systems (ADBE: down $7.13 to $16.83, Research, Estimates) fell sharply after the graphics software maker cut its third-quarter forecasts late Wednesday, citing weak July sales. On Thursday, brokerage house Credit Suisse First Boston cut its third- and fourth-quarter estimates, as well as its 2002 and 2003 forecasts for the company, and Goldman Sachs downgraded the stock.

Having little effect on investor sentiment was the surrender of former WorldCom Chief Financial Officer Scott Sullivan and Controller David Myers to federal authorities in New York. The two will face securities fraud charges in a criminal complaint unsealed Thursday.

European markets closed lower, while Asian-Pacific stocks finished mostly lower Thursday.

Treasury prices rose, pushing the 10-year note yield down to 4.39 percent from 4.46 percent late Wednesday.

Light crude oil futures fell 55 cents to $26.47 a barrel in U.S. trading, while gold was a little higher.

Market breadth was negative. On the New York Stock Exchange, decliners beat advancers by more than 10-to-7 as 1.66 billion shares traded. On the Nasdaq, losers topped winners by 3-to-2 as 1.52 billion shares changed hands.