That put a damper on a Commerce Department report showing a 1.4 percent increase in retail sales, the best gain in six months. Analysts had expected an increase of 0.8 percent.

Combined with oil falling below $49 per barrel, the balance of news could be swinging in the market's favor, but investors' pessimism seemed to prevail.

"It's clear that the economy is growing, and it's growing in a way you'd hope it would be in this point in the cycle," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers in Boston. "The economy is throwing a party and the stock market's not attending."

The price of oil, despite its sharp decline for two straight sessions, still remains high enough going into the summer to exacerbate worries of an economic slowdown as consumers spend more on gasoline and less on everything else. A barrel of light crude settled at $48.54, down $1.91, on the New York Mercantile Exchange — near an 11-week low.

The bond market edged higher, with the yield on the 10-year Treasury note falling to 4.17 percent from 4.18 percent late Wednesday. The dollar rose to a 2005 high against the euro and made gains against other major currencies. Gold prices fell.