Wall St. down more than 1 percent after ECB action, Yellen remarks

By Caroline Valetkevitch

(Reuters) - U.S. stocks dropped more than 1 percent late Thursday afternoon as the European Central Bank's announcements failed to impress investors, while Janet Yellen's comments suggested the Federal Reserve was on track to raise rates this month.

European shares fell following the ECB's decision to extend its asset purchase program until March 2017 but not to increase its size. A cut in deposit rate was in line with expectations, with hopes of further easing being dashed.

Healthcare shares <.SPXHC>, down 2.1 percent, led the day's decline in the S&P 500, followed by energy <.SPNY>, down 1.8 percent in a second day of sharp losses for the sector and the overall U.S. equity market.

The ECB move came a day after Fed Chair Yellen expressed confidence in the U.S. economy and said she was "looking forward" to a rate hike that will be seen as a testament to the economy's recovery from recession. The Fed's next policy meeting is on Dec. 15-16.

"The stimulus package (in Europe) was a little lighter than expected. Along with that, Yellen's comments (were) the final sign (the Fed) is bent on raising rates," said Bryant Evans, investment advisor and portfolio manager at Cozad Asset Management, in Champaign, Illinois.

Yellen told lawmakers Thursday the U.S. central bank was close to lifting its overnight interest rate from near zero. She gave an upbeat view of the economy, saying "growth is likely to be sufficient over the next year or two to result in further improvement in the labor market."

At 2:50 p.m., the Dow Jones industrial average fell 272.45 points, or 1.54 percent, to 17,457.23, the S&P 500 lost 33.85 points, or 1.63 percent, to 2,045.66 and the Nasdaq Composite dropped 102.03 points, or 1.99 percent, to 5,021.20.

Data released Thursday showed initial jobless claims for last week rose but remained at levels consistent with a strengthening labor market. Friday's employment report is expected to show the U.S. economy added 200,000 jobs in November.

Zafgen shares were down 4.4 percent at $6 after the company said the U.S. Food and Drug Administration was putting on complete hold a late-stage study testing its experimental obesity drug.

(Additional reporting by Sweta Singh in Bengaluru; Editing by Don Sebastian)