Bank woes deck Dow

NEW YORK (CNNMoney.com) -- Stocks were knocked lower Thursday morning as record-high oil prices, a slumping dollar and more bank sector woes exacerbated recession fears.

The Dow Jones industrial average (INDU) lost nearly 1% in the early going. The broader Standard & Poor's 500 (SPX) index tumbled 1%, and the Nasdaq composite (COMP) fell 0.4%.

The dollar fell to another all-time low against the euro, which helped push oil prices to a record near $106 a barrel. Gold pulled back slightly after edging closer to the $1,000 an ounce milestone in the previous session.

Merrill Lynch (MER, Fortune 500) slumped more than 5% after it said it will stop issuing subprime mortgages through its First Franklin Financial subsidiary. The company plans to cut 650 jobs at First Franklin and said it is looking to sell the unit's mortgage servicing unit.

Thornburg Mortgage (TMA) plunged 55% on bankruptcy fears after the residential mortgage lender said it had failed to meet a $28 million margin call and is now in default on $320 million in financing. Margin calls require borrowers to pay back loans or offer more collateral.

Additionally, reports suggest that Swiss bank UBS (UBS) may have sold off its mortgage-backed assets at so-called fire sale prices, selling perhaps as much as $24 billion. However, analysts suggested the number was probably smaller, and bond fund PIMCO said reports that it had bought $24 billion in bonds were an "exaggeration," Reuters reported.

Stocks struggled higher Wednesday, finding some momentum at the end of a tough session influenced by a weak Fed report on the economy and bond insurer Ambac Financial's restructuring plan.

Economic news. The pending home sales index was flat in January, leaving the number of homes under contract for sale in the month just above the record low, according to the National Association of Realtors. (Full story).

A separate report showed the number of American workers filing new claims for unemployment benefits fell last week, while the number of continuing claims remained high. (Full story).

Retail sales. The nation's retailers generally saw some improvements in February, after weak sales the previous two months. Among the standouts, both Wal-Mart Stores (WMT, Fortune 500) and rival Target (TGT, Fortune 500) posted better-than-expected sales at stores open a year or more, a retail sector metric known as same-store sales. (Full story).

Other markets U.S. light crude oil for April delivery fell 47 cents to $104.05 a barrel on the New York Mercantile Exchange. Earlier, oil hit an all-time trading high of $105.97 a barrel.

Oil prices have been boosted by the weak dollar and supply worries. OPEC said Wednesday it won't boost production levels, and a government report showed U.S. crude supplies dropped in the latest week.

Gold prices, along with other dollar-traded commodities, have also been surging in response to the weak greenback. But after a big rally, prices backed off a bit. COMEX gold for April delivery fell $4 to $984.50 an ounce.

Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.63% from 3.69% late Wednesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar was off its lows versus the euro after sinking to a fresh low. The dollar also fell against the yen.