U.S. stocks fall on sour earnings, trade fears

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By Stephen Culp

NEW YORK (Reuters) - U.S. stocks dropped on Thursday after earnings disappointed and trade jitters escalated over worries that the European Union could slap retaliatory tariffs on goods imported from the United States.

Officials from the EU Trade Commission, due in Washington next week for trade talks, are said to be preparing a list of tit-for-tat actions in response to proposed U.S. tariffs on EU cars.

Automakers said tariffs on U.S. cars and car parts could increase vehicle prices by $83 billion annually. Ford Motor Co and General Motors Co were down 0.5 percent and 1.4 percent, respectively.

On Wednesday, the Federal Reserve's Beige Book report showed manufacturers in all 12 districts of the U.S. central bank are worried about the impact of the trade dispute.

"If this ends up being a protracted war, it's going to be bad news," said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco. "Unless this thing starts to show significant progress prior to the midterms, it's going to be a black mark, because the economy will start to slow down," he said, referring to congressional elections on Nov. 6.

Shares of eBay dropped 10.1 percent after a disappointing earnings report. The stock was among the biggest drags on the Nasdaq and the S&P 500.

American Express Co dipped 2.7 percent after the credit card company reported rising expenses due to increased spending on its rewards programme.

The dollar index briefly hit a one-year high, reinforcing worries that the strong greenback could hurt results from U.S. multinationals. But the dollar pared gains after President Donald Trump expressed concern about a strong currency.

The Dow Jones Industrial Average fell 134.79 points, or 0.53 percent, to 25,064.5, the S&P 500 lost 11.13 points, or 0.40 percent, to 2,804.49 and the Nasdaq Composite dropped 29.15 points, or 0.37 percent, to 7,825.30.

The second-quarter reporting period is gaining momentum, with results in so far from 69 companies in the S&P 500.

Earnings now are forecast to have risen 21.5 percent, compared with the 20.7 percent gain seen on July 1. Of the companies that have reported, 85.5 percent have surprised analyst estimates to the upside, according to Thomson Reuters data.

The financial sector <.SPSY> saw the biggest percentage drop in the S&P 500, down 1.4 percent.

While all three major U.S. stock indexes closed in negative territory, advancing issues outnumbered declining ones on the NYSE by a 1.37-to-1 ratio. On Nasdaq, a 1.17-to-1 ratio favoured advancers.

The U.S. yield curve flattened close to levels not seen in 11 years on upbeat economic data, dragging on banks. JPMorgan , Bank of America and Citigroup were all down more than 1 percent.

Bank of New York Mellon fell 5.2 percent after saying the loss of two clients will continue to hurt results, while Travelers Cos was among the biggest drags on the Dow Jones, falling 3.7 percent following a profit miss attributed to U.S. storm-related losses.

Among gainers, International Business Machines Corp stock was up 3.3 percent as new business helped the company top second-quarter Street estimates.

Comcast Corp rose 2.6 percent on news that the cable company had dropped its pursuit of Twenty-First Century Fox entertainment assets to focus on its bid for Sky Plc .

On the economic front, the U.S. Labor Department reported that the number of Americans filing for unemployment benefits fell last week to the lowest in more than 48-1/2 years as the labour market continues to tighten.

The S&P 500 posted 24 new 52-week highs and three new lows; the Nasdaq Composite recorded 102 new highs and 38 new lows.

Volume on U.S. exchanges was 6.29 billion shares, compared with the 6.46 billion-share average for the full session over the last 20 trading days.

(Reporting by Stephen Culp; editing by Jonathan Oatis)