The market took another step backward on Thursday, this time in the form of a 200-point dive on the Dow, ending a two-day win streak on Wall Street. 

The steep losses were fueled by a myriad of bad news, including AIG's plunging stock, continued turmoil in the financials and disappointing economic and retail reports.

Today's Market

The Dow Jones Industrial Average slid 224.64 points, or 1.93% to 11431.43, the Standard & Poor’s 500 index fell 23.12 points, or 1.79%, to 1266.07 and the Nasdaq Composite Index lost 22.64 points, or 0.95%, to 2355.73. 

There didn't appear to be any single catalyst for the market's downfall on Thursday, rather a cluster of disappointing news and the lack of a motivating factor to buy.

“Quite candidly, the market has been on a little bit of a tear. I'm not surprised to see the magnitude of this move," said Art Hogan, chief market strategist at Jeffries & Co. “There certainly are plenty of stories to point your finger at today.”

The market closed at the lowest levels of the day as the losses took a big chunk out of the 370 points the Dow gained over the prior two days.

“It’s had a bearish tone all day. It’s a little bit of a hangover showing that things [still] aren’t that good" for the stock market, said Frank Davis, director of sales and trading at Lek Securities. 

Insurer AIG (AIG) was hands down the worst-performing stock on the Dow on Thursday, diving almost 20% after posting its third-straight quarterly loss. Wal-mart (WMT) also fell sharply on weaker-than-expected same-store sales. Tech giants Intel (INTC), Microsoft (MSFT) and Hewlett-Packard (HPQ) were the lone advancing stocks on the day. 

The financial sector accounted for the majority of the losses on Wall Street, sliding a collective 5%. The major catalysts for the selloff among financials were AIG's $5.36 billion loss and Citigroup's (C) $7 billion settlement of a government probe into its auction-rate securities business. 

“That was sort of a grim reminder that there is still exposure there. It's like a 'What other shoe can drop'" mentality, said Davis, referring to the Citi news. 

AIG set the bearish mood even before the day started, posting its second-largest loss ever late Wednesday. The company's adjusted-loss of 51 cents per share missed average estimates of 46 cents per share. 

Aside from a brief cooling off period, oil prices didn't offer Wall Street much to cheer about. Crude closed $1.44 higher at $120.02 on the day. The gains for crude oil came despite another rally for the dollar, which rose more than 0.5% against the euro after the European Central Bank held interest rates steady. The rally breaks a streak of lower oil prices in four out of the past five days.

The market didn't react well after the Department of Labor revealed an unexpected rise in initial jobless claims last week. The government said claims rose by 7,000 to 455,000 -- the highest level since 2002. Economists surveyed by Dow Jones had expected claims to decline by 20,000. 

Retailers reported mostly underwhelming July same-store sales reports as stores continue to deal with the slowing economy. It also appears that retailers felt the slowing benefits from the stimulus checks that helped keep consumer spending afloat earlier in the summer. According to Retail Metrics, more than half of the retailers that reported on Thursday missed consensus estimates. 

Wal-Mart, the king of the retailers, posted a 3% rise in same-store sales but missed consensus estimates for a 3.3% rise. Target (TGT), Pacific Sunwear (PSUN) and Gap (GPS) were among the retailers reporting disappointing results. On the other hand, Costco Wholesale (COST) and Limited Brands (LTD) posted better-than-expected sales figures.

The Nasdaq Composite posted more modest losses than the broader market. Tech stocks SanDisk (SNDK), Marvell (MRVL) and Sun Microsystems (JAVA) posted sizable gains.  VeriSign (VRSN) fell the furthest on the Nasdaq 100, sliding 13% after its results. 

Corporate Movers

Citigroup (C) agreed to buy back $7 billion of illiquid auction-rate securities by November 5 to settle a probe by New York Attorney General Andrew Cuomo and the SEC. The financial conglomerate has been accused of wrongly telling customers the securities were liquid and safe. Citi also said it will pay $100 million in penalties and will reimburse more than 40,000 investors who sold these securities at a discount after the market faltered.

Lehman Brothers (LEH) CEO Dick Fuld is “in scramble mode” to raise capital while trying to make sure the investment bank stays in one piece, the New York Post reported. Shares sank more than 7%. Fuld has had recent talks with private-equity and foreign investors in an effort to raise capital to cancel out a potential unloading of $30 billion of mortgage assets, the newspaper reported. A last-ditch option would be to sell a major stake of its asset management business but other options include selling Lehman’s asset-management business, according to the report.

Toyota's (TM) fiscal first-quarter profit declined for the first time in three years but managed to top consensus estimates. The world's largest automaker saw its profit slide 28% to $3.2 billion during the period. Toyota's operating profit missed average estimates. The company's revenue slid by 4.7% during the quarter. 

Chrysler LLC is considering teaming up with Nissan (NSANY) to jointly produce midsize cars, The Wall Street Journal reported. Under the scenario being considered, Nissan would manufacture midsize sedans that Chrysler would then sell in the U.S. under its own name, the newspaper reported, citing unnamed sources. The automakers have already joined in selling pickups and subcompact cars. 

American Eagle Outfitters (AEO) updated its second-quarter forecast, saying it now sees earnings falling to 28 cents per share from 37 cents a year ago. The retailer said second-quarter sales slid 2% to $688.8 million. According to Thomson Reuters, analysts had been expecting a profit of 28 cents on $720.74 million in sales for the period. The update came along with American Eagle's 7% drop in July same-store sales, which was worse than the 2.5% decline that had been expected. 

Sallie Mae (SLM) fell after the student lender said in an SEC filing that the FDIC and Utah Department of Financial Institutions may take administrative action against Sallie Mae Bank over compliance management. The company said it doesn't see any such action impacting its ongoing operations or growth or resulting in any fines. 

Blockbuster's (BBI) second-quarter adjusted profit missed average estimates, sending its stock lower in pre-market trading. The video rental chain lost 20 cents per share, compared to a larger 52-cent loss a year ago. Analysts had been expecting a 19 cent loss. Blockbuster's revenue rose slightly to $1.3 million, topping average estimates of $1.23 billion. 

Data Dump 

One of the only bullish factors for the stock market Thursday was a better-than-expected pending home sales report for June. The National Association of Realtors said its index rose 5.3% two months ago to 89.0 --  the highest level since October 2007. Consensus estimates had called for the index to have declined to a reading of 83.5.

World Markets

The Dow Jones Euro Stoxx 50 Index, a gauge of the 50 biggest companies in Europe, fell 11.77 points, or 0.35%, to 3397.25. The FTSE 100, London's benchmark index, lost 8.60 points, or 0.16%, to 5477.50.

On the continent, Paris' CAC 40 picked up 9.10 points, or 0.20%, to 4457.43, while Germany's DAX slid 17.90 points, or 0.27%, to 6543.49.

In Asia, Hong Kong's Hang Seng rose 154.45 points, or 0.70%, to 22104.20 while Japan's Nikkei 225 slid 129.90 points, or 0.98%, to 13124.99.