The Dow tumbled 130 points on Thursday as worries about the U.S. losing its perfect credit rating sent the markets back to square one for what had started as a promising week.

Today’s Markets

The Dow Jones Industrial Average lost 129.91 points, or 1.54%, to 8292.13, the S&P 500 fell 15.14 points, or 1.68%, to 888.33 and the Nasdaq Composite sank 32.59 points, or 1.89%, to 1695.25. The consumer-friendly FOX 50 dropped 10.48 points, or 1.57%, to 655.18.

“The mood is kind of bearish. They’ve been expecting a pullback and it looks like we’re in the process of getting it,” NYSE trader Bernie McSherry of Cuttone & Co. told FOX Business. “People here are a little bit leery of this rally."

The fears about the U.S. "AAA" credit rating were sparked by Standard & Poor's, which warned it may slash the U.K.'s coveted rating if its next government doesn't slash soaring debt levels. That news sent European markets tumbling, led by a 2.8% dive for London's FTSE 100. 

Some said the worries on Wall Street were overblown given that the S&P. report didn't address the U.S.'s surging debt and said there is only a one in three chance it will need to downgrade the U.K.'s rating.

“It’s certainly prompting people to sell first and ask questions later. I think it’s getting a little overdone,” said Michael James, senior equity trader at Wedbush Morgan Securities.

The blue-chip index rallied more than 75 points in the day's final hour but still ended with its first three-day losing streak since March 3, erasing virtually all of Monday's big gains. The Dow is now at risk for its second-straight weekly loss following a nine-week surge that added 2,000 points to the beaten-down index.

“It seems like a little bit of continuation of a correction that’s well warranted and needed. We had that big rally and now we’re kind of pulling back,” said Ryan Detrick, equity analyst at Schaeffer’s Investment Research. “We still think this market is going to go higher but a break is well warranted.”

Nearly all 30 components of the Dow finished in negative territory, led by Caterpillar (CAT), Home Depot (HD) and Alcoa (AA). In sharp contrast to its blue-chip peers, General Motors (GM) soared more than 30% after the auto maker reached a key deal with its union.

The Nasdaq Composite closed with heavier losses than its counterparts amid sharp drops from tech heavyweights like Research in Motion (RIMM) and eBay (EBAY).

Energy stocks like Schlumberger (SLB) were the biggest drags on Wall Street as crude oil sank lower after hitting a fresh six-month high Wednesday on a bullish inventory report. Crude pared some of its losses late in the day but still settled at $61.05, down 99 cents, or 1.60%.

Commodities were lower across the board as the dollar strengthened against the British pound, sending shares of basic material stocks like Allegheny Technologies (ATI) and Freeport-McMoran (FCX) sharply lower. 

Data, Retailers Fail to Lift Stocks

Wall Street was unable to rally around several positive storylines generated Thursday.

For example, the markets reacted negatively to the Labor Department's initial jobless claims report, which showed claims declined by a better-than-expected 12,000 last week. However, the government also said continuing claims jumped by 75,000 to a fresh record of 6.7 million and increased its estimate for claims from two weeks ago.

Separately, the Conference Board’s leading indicators index rose by a better-than-expected 1% -- the first gain in seven months and a signal of possible growth for the second half of 2009. On the other hand, the Philadelphia Fed's manufacturing index improved to a -22.6 reading for May, up from April's -24 but well shy of analysts' expectations. 

The markets received a flood of mixed news on the retail front days on Thursday following a string of positive earnings reports earlier this week. While Barnes & Noble (BKS) boosted its guidance and Buckle (BKE) beat the Street, video game retailer GameStop (GME) issued cautious guidance and Hot Topic (HOTT) sees an unexpected second-quarter loss.

Corporate Movers

General Motors (GM) was easily the biggest winner on the Dow after the auto maker reached a key deal with the United Auto Workers to cut its labor costs and change its $20 billion debt for retiree health-care benefits.

Bank of America (BAC) wants to repay its $45 billion of TARP cash by the end of the year as it strives to raise more than $35 billion by October, according to the Financial Times.

Google (GOOG) CEO Eric Schmidt told the Financial Times the search titan has decided not to acquire a newspaper as potential targets are too expensive or have too many liabilities. The comments come amid talk the company was interested in taking over the New York Times (NYT). 

Regions Financial (RF) successfully sold $1.85 billion of common shares for $4 per share, a discount of nearly 20% from the regional bank’s closing price on Wednesday.

Fifth Third Bancorp (FITB) unveiled plans to sell up to $750 million of stock in an effort to plug a $1.1 billion capital shortfall. The regional bank said it will also attempt to swap up to $1.1 billion of preferred shares for common equity.

GameStop (GME) reported in-line earnings of 42 cents per share on $1.98 billion in sales but the video game retailer forecasted significantly weaker-than-expected earnings for the current quarter.  GameStop sees same-store sales declining as much as 11% for the current quarter.

Barnes & Noble (BKS) raised its full-year guidance to a range of $1.10 to $1.40 per share, compared to the Street’s view of $1.07. The bookseller said it lost a better-than-expected 4 cents per share in the first quarter on a 4% decline in sales.

Hot Topic (HOTT) lost nearly one-fifth of its market cap a day after the retailer beat the Street but forecasted a second-quarter loss. The company said it sees revenue of $161 million to $165 million, below analysts’ view of $172.6 million.

Ross Stores (ROST) boosted its same-store sales guidance for the second half of the year and issued stronger-than-expected guidance for the current quarter and 2009. The retailer also reported in-line earnings for the first quarter of 72 cents per share on $1.69 billion in sales.

Buckle (BKE) beat the Street with a 44% jump in first-quarter profit on revenue of $199.7 million. The parent of Guess and Fossil said its same-store sales jumped 17.7% during the quarter.

Global Markets

U.S. markets weren't the only ones under pressure.

European stocks continued to pullback from this week's gains as London's FTSE 100 tumbled 2.75% to 4345.47, France's CAC 40 fell 2.60% to 3217.41 and Germany's DAX slid 2.74% to 4900.67. 

Asian stocks also sold off as Japan's Nikkei 225 fell 80.49 points, or 0.86% and Hong Kong's Hang Seng dropped 276.35 points, or 1.58%.