By Kate Gibson

The latest economic data and corporate layoffs -- including job cuts at Starbucks Corp. -- has economist hiking forecasts for next Friday's unemployment count, and are among the factors dragging down stocks.

The Labor Department on Thursday reported continuing jobless claims rose by 159,000 last week to a seasonally adjusted 4.78 million, the most since the government began keeping track in 1967.

Separately, the Commerce Department estimated sales of new homes fell to a record low in December, declining 14.7% to a seasonally adjusted annual rate of 331,000. .

The reports "confirm what we already worry about, housing is still on its back and the economy is struggling. Between the terrible housing report and the ugly jobless claims, there you have it. The government is laying poor data at our doorsteps," said Jack Ablin, chief investment officer at Harris Private Bank.

The data, along with disappointing corporate results, hit equities hard on Thursday, with financials, consumer discretionary and industrials declining the most. The Dow Jones Industrial Average (DJI) down 210.19 points, or 2.5%, at 8,165.26. After a four-session streak of gains, the S&P 500 (SPX) was off 27.08 points, or 3.1%, at 847.01. The Nasdaq Composite (RIXF) fell 48.65 points, or 3.1%, to 1,509.69.

Thursday's reports suggest "an ugly economic trajectory with rapidly deteriorating labor and housing markets as we entered the first quarter. We expect another big gain in the jobless rate to 7.5% in January, and we assume a 9% peak rate in the third quarter of 2009," said analysts at Action Economics.

"There's a continual drumbeat of layoff announcements every day. Everyone is bracing for a bad one," said Ablin of the unemployment report slated for release next Friday.

The unemployment rate climbed to 7.2% in December as the economy shed 524,000 jobs, bringing to nearly 2.6 million jobs lost in 2008, with 1.9 million jobs lost in the final four months of the year. The data were worse than expected, and the ongoing carnage in employment appeared to be unabated as 2009 progressed.

Allstate Corp. (ALL) and Eastman Kodak Co. (EK) were among those announcing layoffs on Thursday, with the auto insurer saying it would slash about 1,000 jobs in its financial unit and Eastman Kodak planning to hack as many as 4,500 jobs. .

Also hit by the weak economy, Starbucks on Wednesday said it would shutter another 300 stores, bringing to 977 the count of expected closures that will result in as many as 6,700 job losses. .

On Monday, Home Depot Inc. (HD), Pfizer Inc. (PFE) and Sprint Nextel Corp. (US-S) were among those wielding the ax, resulting in tens of thousands of layoffs.

Last month's fall of new home sales further blackened hopes for the embattled housing industry, its troubles adding to labor market woes.

But Ablin believes the worst in housing is already past, saying the shutdown in new home construction is part of an improving picture. "The last thing you want is more supply. I'm in the camp - maybe of one - that says housing prices stabilize this year. That'll enable investors to start to warm up to the financial markets."

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