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S&P 500 drops while VIX jumps on Ukraine, Middle East tensions

The financial markets reacted sharply to the news on Thursday that a Malaysia Airlines aircraft had crashed in Ukraine near the border with Russia.

The Dow Jones industrial average fell 161.39 points to 16,976.81. The Nasdaq composite index dropped 62.52 points to 4,363.45 and the Standard & Poor’s 500 Index lost 23.45 points to 1,958.12.

Officials say the airplane was struck by a surface-to-air missile and all 295 passengers are believed to have died. The government in Kiev blamed pro-Russian rebels for shooting down the jet, but the separatists deny the accusation.

The news overrode positive employment reports showing initial claims for jobless benefits fell by 3,000 in the past week to 302,000, the lowest level in nine months. Continuing claims for unemployment benefits fell to 2.51 million, the lowest level since 2007.

The Malaysia Airlines news caused gold to jump $17.10 to $1,316.90 an ounce, while oil jumped $1.99 to $103.19 a barrel.

The Standard & Poor’s 500 Index fell the most in three months and the VIX had the biggest jump in more than a year amid intensifying tension in Ukraine and the Middle East.

The Chicago Board Options Exchange Volatility Index surged 32 percent, the most since April 2013, to 14.54. More than 6.6 billion shares changed hands on U.S. exchanges Thursday, 15 percent above the three-month average.

Equities extended losses in the final hour of trading after Israel sent ground forces into the Gaza Strip. The military offensive was intended to stop the barrage of missiles fired by Hamas and other Palestinian militants, raising the stakes of the 10-day-old conflict after an Egyptian peace plan was spurned.

The Malaysian plane crashed in the main battleground of Ukraine’s civil war and is one of a number to have been downed in the region in the past month. Russian President Vladimir Putin has repeatedly denied his country has any involvement in the insurgency.

Airlines began shifting planes away from the region, which sits astride some of the busiest air routes between Europe and Asia.

Delta Air Lines Inc. (NYSE: DAL), American Airlines Group Inc. (Nasdaq: AAL) and United Continental Holdings Corp. (NYSE: UAL) retreated more than 3.4 percent.

The VIX rose to the highest level since April 15. The gauge jumped 17 percent last week for its biggest rally in three months, after closing July 3 at the lowest since 2007.

The benchmark index increased 0.4 percent Wednesday as companies from Time Warner Inc. (NYSE: TWX) to Intel Corp. (Nasdaq: INTC) rallied amid deals and better-than-forecast earnings.

Economic data showed beginning home construction unexpectedly declined in June to a nine-month low as a record plunge in the South swamped gains in the rest of the United States.

The number of Americans filing applications for unemployment benefits dropped last week, showing further healing in the labor market, while the Federal Reserve Bank of Philadelphia’s factory index increased in July.

SanDisk (Nasdaq: SNDK) tumbled 14 percent, its biggest loss in five years. The company, which had rallied 53 percent this year, has held back on increasing production, seeking to avoid a repeat of supply gluts that have caused semiconductor prices to fall below the cost of manufacturing.

AutoNation Inc. (NYSE: AN) dropped 8.2 percent, the most since 2009, after the largest U.S. new-vehicle retailer reported quarterly profit that missed forecasts as investment in an online sales system increased costs.

Yum Brands Inc. (NYSE: YUM) retreated 6.9 percent. The owner of fast- food chains such as KFC and Taco Bell posted second-quarter profit that trailed some analysts’ estimates, dragged down by a slump at its Pizza Hut restaurants.

Mattel Inc. (Nasdaq: MAT) fell 6.6 percent, the most since January, as second-quarter earnings and sales missed analysts’ estimates.

UnitedHealth (NYSE: UNH) added 1.6 percent to a record $85.11. The largest U.S. health insurer by sales beat analyst earnings estimates as revenue grew from its technology and consulting unit that helped fix the Obamacare insurance website.

Microsoft Corp. (Nasdaq: MSFT) increased 1 percent after saying it will eliminate as many as 18,000 jobs, the largest round of cuts in its history, as CEO Satya Nadella integrates Nokia Oyj’s handset unit and slims down the software maker. The restructuring amounts to about 14 percent of its workforce.

— Bloomberg contributed to this report.

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