Wall Street in sharp 2% slump

US stocks ended July with a more than 300-point selloff for the Dow Jones Industrial Average, a swoon that snapped a five-month winning streak for the broader market.

Traders said there was no single catalyst for the stumble, though selling started early and accelerated into Thursday's closing bell, dragging the Dow into negative territory, down 0.1%, for 2014.

Investors said an upbeat reading from the labour market sowed concerns about the Federal Reserve possibly raising rates quicker than many investors anticipate. Some pointed to disappointing earnings reports from US companies Thursday, which disrupted what has been a strong season for corporate profits. Others pointed to Argentina's default on some bonds and fresh worries that the eurozone's central bank will need to provide more stimulus.

At the closing bell, the Dow Jones Industrial Average fell 317.06 points, or 1.9%, to 16,563.30. The S&P 500 shed 39.40 points, or 2%, to 1,930.67 and the Nasdaq Composite Index dropped 93.13 points, or 2.1%, to 4,369.77.

"There are so many things that are coming to a head simultaneously," Joe Spinelli, head of Americas single stock trading at Deutsche Bank, said. "Clients are wanting to get into a position to ride out any storm that might pop up."

Trading in individual stocks was heavier than in recent days, but not yet at levels that resembled panic selling, traders said. Wall Street trading desks said they saw a steady flow into index-tracking exchange-traded funds as investors looked to hedge existing positions and shifted to more defensive postures.

"People are taking profits and they are a little nervous," Ian Winer, director of equity trading at Wedbush Securities, said.

Nico Marais, head of multi-asset investments and portfolio solutions at Schroder Investment Management, said that he has been trimming some stock positions and raising cash in recent weeks because he has been losing conviction in the endurance of the rally.

"We've been through a period of relative calm in the markets and not seen a selloff for some time," he said. "There's a sense of complacency. This is not the time to be adventurous in the markets."

Weeks of selling of European stocks finally spilled over to the US on Thursday. The Stoxx Europe 600 fell 1.7% in July, and Germany's DAX dropped 4.3%, its biggest monthly loss since May 2012. Financial trouble at Portugal's Banco Espírito Santo and ramped-up sanctions against Russia clashed with economic signals that suggest the European Central Bank must do more to support growth in the eurozone.

"Europe has been in sell mode," Jeff Yu, head of single-stock derivatives trading at UBS, said. "It finally broke through today, but it's been building the last two or three weeks."

In the US, declines were broad, with energy stocks leading all 10 of the S&P 500's industry groups lower. Each of the Dow's 30 stocks lost ground.

Some investors pointed to lofty stock valuations.

"Valuations are still attractive, but not as drop-dead gorgeous as they were a year ago," Milton Ezrati, senior economist and market strategist at Lord, Abbett & Co, said. "It's harder to be aggressive when the market is no longer screaming cheap."

Earnings season has been generally positive, but a series of lacklustre reports weighed on the market Thursday.

Exxon Mobil fell 4.2% after its second-quarter earnings rose 28% but production declined.

Whole Foods Market fell 2.3% after cutting its full-year sales projection for the fourth time in nine months in its quarterly earnings report.

Akamai Technologies dropped 2.8% after posting second-quarter results that fell short of some high-end estimates.

Riskier corners of the market suffered most. The Russell 2000 index of small company shares dropped 2.3%, extending its monthly drop to 6.1%, the biggest monthly decline since May 2012.

The Fed's Wednesday policy statement delivered mixed signs about the economy. It noted less conviction that the central bank believes that inflation will remain low, but also that it sees "slack" in the labour market.

"The market is slightly torn on what to make of it all," Luke Bartholomew, investment manager at Aberdeen Asset Management, said.

Some market players voiced concern that improving US economic data could prompt the Fed to raise rates sooner than some expect. On Wednesday, data showed the US economy expanded by 4% in the second quarter, topping estimates.

"Better economic data puts into place the realisation that the Fed is probably going to have to act sooner rather than later to be easing off the pedal," Hank Smith, chief investment officer at Haverford Trust, said.

On Thursday, claims for unemployment aid in the past week came in slightly better than expected, at 302,000, while the prior week's figure was revised down to 279,000, a 14-year low.

Attention turns to Friday's monthly employment report, which is expected to show that the US economy added 230,000 jobs in July. The unemployment rate is expected to be steady at 6.1%.

The Chicago Business Barometer fell 10 points to 52.6, far below expectations of 63.0, its lowest since June 2013.

Asian markets ended mostly higher. China's Shanghai Composite rose 0.9%. Japan's Nikkei Stock Average slipped 0.2%.