Banks push stocks lower

NEW YORK (CNNMoney) -- Stocks ended Thursday's session solidly lower, as weakness in financial shares offset a stronger-than-expected manufacturing report that initially eased some investor jitters.

However, all eyes are on Friday's jobs report.

"The market is holding its collective breath for tomorrow's payrolls number," said Jack Ablin, chief investment officer with Harris Private Bank.

The Dow Jones industrial average (INDU) lost 120 points, or 1%, to 11,494. The Dow had been up more than 100 points following the Institute for Supply Management's manufacturing report earlier in the day.

The S&P 500 (SPX) lost 14 points, or 1.2%, to 1,204; and the Nasdaq Composite (COMP) lost 33 points, or 1.3%, to 2,546.

Among the biggest drags on the Dow and the S&P were the major investment banks, notably Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500) and Citigroup (C, Fortune 500). The sell-off came after the Federal Reserve sanctioned Goldman for its mortgage practices, with monetary damages to be assessed later. Goldman, BofA and JPMorgan all shares fell more than 3%.

Stocks had been positive most of the day after a somewhat better report on manufacturing activity from the ISM. Its manufacturing activity index came in at 50.6 for August, ahead of the 47.0 economists had expected.

"Today's ISM report is just the latest data point which contributes to our 'no imminent recession in the United States' call," said Dan Greenhaus, chief global strategist with BTIG, in a note to investors.

$350,000 hiding in cash. Time to get back in the markets?

In other data, the Labor Department said the number of people who filed for unemployment benefits fell by 12,000 to 409,000 last week. The number was just shy of forecasts.

But the focus for investors is Friday's monthly jobs report. A CNNMoney survey of 21 economists forecasts that the U.S. economy added 75,000 jobs overall, and the unemployment rate remained at 9.1% in August.

Although stocks ended Wednesday, the last day of August, slightly higher with a four-day winning streak, overall it was a brutal month for the market. Investors battled through volatility, starting with the debt ceiling debate.

The turmoil really set in after Standard & Poor's downgraded the U.S. credit rating. That acted as the catalyst for two weeks of wild swings as investors feared the U.S. would tip back into a recession.

Companies: Retailers were among Thursday's top performers, including shares of Macy's (M, Fortune 500) and Costco (COST, Fortune 500), after both companies reported better-than-expected same-store sales for August. Both Macys and Costco shares rose on the day.

Bank of New York Mellon (BK, Fortune 500) ousted CEO Robert Kelly late Wednesday, citing "differences" in how the company was managed. The bank's president, Gerald Hassell, has taken on the chief executive and chairman roles.

Major automakers Ford (F, Fortune 500), Toyota (TM), GM (GM, Fortune 500) reported sales figures for August. GM and Ford sales came in a bit short of forecasts, but Chrysler sales beat expectations. Ford and GM shares were down 2% and 4% respectively.

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

Oil for October delivery fell a penny to $88.81 a barrel.

Gold futures for December delivery fell $2.60 to $1,829.10 an ounce.

Treasuries: Reversal or consolidation?

Bonds: The price on the benchmark 10-year U.S. Treasury rose, pushing the yield down to 2.17% from 2.22% late Wednesday.

World markets: European stocks closed mixed in Thursday trading. Britain's FTSE (FTSE) 100 rose 0.5%, the DAX (DAX) in Germany tumbled 1% and France's CAC (CAC) 40 rose 0.3%.

Asian markets ended the session mixed. The Shanghai Composite (SHCOMP) fell 0.4%, while the Hang Seng in Hong Kong (HSI) rose 0.3% and Japan's Nikkei (N225) gained 1.2%.