Stocks end in red after 3-day advance

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NEW YORK (CNNMoney) -- U.S. stocks ended sharply lower Thursday, as investors hit the brakes following a 3-day advance, and as nervousness about Europe's debt crisis returned to the spotlight.

The Dow Jones industrial average (INDU) tumbled 171 points, or 1.5%, and the S&P 500 (SPX) lost 18 points, or 1.6%. The Nasdaq composite (COMP) dropped 48 points, or 2%.

"The market's had a few good days recently, so we're going to see a lot of give and take," said Art Hogan, managing director of Lazard Capital Markets.

Investors also grew anxious about Europe, amid rumors that ratings agencies may downgrade the credit rating in Germany -- Europe's largest economy.

"I wouldn't put much stock into [the rumor], because ratings agencies would look at France before they even consider downgrading Germany. But there is a lot of nervousness in the market and that's driving sentiment," said Michael Hewson, market analyst at CMC Capital Markets in London.

Standard and Poor's, Fitch Ratings and Moody's Investors Services said Thursday that they did not have any updates to their AAA-rating on Germany.

European stocks ended sharply lower. The DAX (DAX) in Germany slipped 1.4%, Britain's FTSE (FTSE) 100 fell 1.7%, and France's CAC (CAC) 40 shed 0.7%.

Market wants Bernanke to be Mighty Mouse

This week's three-day stock advance in the U.S. has been attributed to investor hopes that Fed chief Ben Bernanke will announce steps on Friday to spur the faltering economy at the Kansas City Fed's annual retreat in Jackson Hole, Wyo.

At last year's meeting, Bernanke prepared the market for QE2 -- a bond-buying program that is widely credited for supporting stocks earlier this year.

"I'm worried about how much anticipation is baked into the market that Bernanke will do a repeat of last year," Hogan said, adding that investors will likely be disappointed if the Fed chief fails to announce new measures.

Prior to Thursday's declines, the Dow and S&P 500 were up 4% this week, while the Nasdaq gained 3%.

Companies: Financial stocks were the biggest winners Thursday, as investors reacted to Warren Buffett's $5 billion bet on battered shares of Bank of America (BAC, Fortune 500). The news was a welcome surprise, since Bank of America shares have been hammered recently and are down roughly 40% over the past month

Shares of the Charlotte, N.C.-based bank rallied 9%, making it the biggest gainer on the Dow index.

Other bank stocks were right behind BofA with healthy gains. Morgan Stanley (MS, Fortune 500) rose nearly 3% and Citigroup (C, Fortune 500) jumped 5%, while US Bancorp (USB, Fortune 500) and Wells Fargo (WFC, Fortune 500) also edged higher.

Meanwhile, shares of Apple (AAPL, Fortune 500) dipped almost 1% after co-founder and two-time CEO Steve Jobs resigned late Wednesday.

Former Chief Operating Officer Tim Cook will replace Jobs, who will remain chairman of the second-most valuable company in the world.

Economy: First-time claims for unemployment benefits rose more than expected, as a dispute between Verizon Communications (VZ, Fortune 500) and its union employees caused thousands of workers to seek jobless benefits

Ongoing claims, which include people filing for the second week of benefits or more, dropped to the lowest level since September 2008.

Currencies and commodities: The dollar rose against the euro, the British pound and Japanese yen.

Oil for October delivery rose 14 cents to settle at $85.30 a barrel.

Gold futures for December delivery rose $5.90 to settle at $1,763.20 an ounce. Earlier, gold prices fell almost 3% to $1,705.40 an ounce, and prices tumbled 5% Wednesday. The weakness comes after a powerful rally in the gold market that sent prices skyrocketing above $1,900 an ounce earlier this week.

Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.24% from 2.28% late Wednesday.

World markets: Asian markets ended Thursday's session with gains. The Shanghai Composite (SHCOMP) rose 2.9%, while the Hang Seng (HSI) in Hong Kong and Japan's Nikkei (N225) increased 1.5%.