NEW YORK (MarketWatch) — The U.S. stock market had its worst day in five weeks Thursday, as investors turned risk-averse amid concerns of stalling growth in the euro zone and mixed domestic economic data, including reports on housing and industrial production.

Reflecting this flight to safety, U.S., U.K. and German government bonds rallied, with 10-year Treasury yields falling to 2.5%.

The S&P 500 SPX, -1.11% fell 17.68 points, or 0.9%, to 1,870.85. The Dow Jones Industrial Average DJIA, -0.87% dropped more than 200 points at one point and closed off session lows, down 167.16 points, or 1%, to 16,446.81. The Nasdaq Composite COMP, -1.07% ended the day down 31.33 points, or 0.8%, at 4,069.29.

The Russell 2000 RUT, -0.37% index of small stocks recovered some of the worst losses and closed 7.15 points, or 0.7%, lower at 1,095.99. The index briefly entered correction territory. At its session lows, it was down 10% from the closing high of 1,208.65, reached on March 4.

Follow MarketWatch’s live blog of today’s stock-market action.

“Today’s falling prices have more to do with the weak economic data out of Europe. The picture there is so bleak that the Germany’s Bundesbank is signalling underwriting monetary stimulus,” said Timothy Leach, chief investment officer, at U.S. Bank Wealth Management Group.

“Our own economy is improving but very slowly. Combine that with continued tapering and it is not surprising that markets have moved sideways this year,” he added.

Data on euro-zone first-quarter GDP growth rattled investor nerves after coming in at a rate of 0.2%, below the expected 0.4%.

Domestic economic reports were mixed. Data on jobless claims and regional manufacturing were generally positive, while housing and industrial production data disappointed investors. First take: economy improving faster than markets and Fed believe.

Consumer prices in April posted the biggest increase since last summer as the cost of many staples rose, making it harder for Americans to stretch their paychecks to pay for typical household expenses.

Applications for weekly unemployment benefits fell sharply for the second straight week, touching the lowest level since May 2007, but at least part of the drop probably stemmed from seasonal quirks tied to a late Easter holiday.

Manufacturers in the New York region said business improved markedly in early May, suggesting a bounce in activity has finally arrived. The Philadelphia Fed’s manufacturing index retreated slightly, but not as much as forecast by analysts.

Industrial production dropped in April, as utilities output tumbled during the month.

Home builders are the most pessimistic they’ve been in a year, with makers of new single-family homes reporting fewer sales.

Wal-Mart, Kohl’s drop after earnings miss

Retailer company stocks were in focus amid earnings results.

J.C. Penney Co. Inc. US:JCP, shares soared in aftermarket action, rallying 18% after same-store sales beat estimates.

Also reporting after the close, Nordstrom Inc. JWN, -3.07% posted earnings above analysts estimates. Shares surged 8.4% in aftermarket action.

Wal-Mart WMT, -1.02% shares fell 2.4% after the company’s first-quarter profit and sales missed expectations.

Shares of Kohl’s Corp. KSS, +0.60% fell 3.4% after the retailer’s financial results came in below expectations.

Macy’s M, -1.45% , which reported on Wednesday, fell 1.3%.

Shares of Cisco Systems Inc. CSCO, -1.38% were up 6% after the computer equipment giant topped Wall Street estimates for earnings and sales.

Shares of ExOne Co. XONE, +0.37% fell 17% after the 3-D printer company posted a first-quarter loss that was bigger than analysts expected.

European stocks slip

European stocks SXXP, -0.66% slipped in the wake of lower-than-expected GDP data. Growth in Japan, meanwhile, outstripped expectations as the economy expanded by a robust 5.9% rate in the first quarter. But a stronger yen pulled Japanese stocks lower, leaving the Nikkei Average NIK, +0.17% down 0.8%. The Shanghai Composite SHCOMP, +2.06% fell 1.1%. China’s cabinet announced several measures on Thursday to “boost and stabilize” the country’s foreign trade.

Across other markets, crude for June delivery CLM24, +0.02% eased 87 cents to $101.50 a barrel, while gold for June delivery GCM24, was down $12.30 at $1,293.60 an ounce. The ICE dollar index DXY, +0.03% showed the dollar falling against a basket of six rivals, to 80.05 from 80.060 in late North American trading on Wednesday.

More must-reads from MarketWatch:

Millennials are not stock-market fans

Stocks are warning of us an approaching bear market

David Tepper: Not saying go short stock market, but ‘don’t be so freakin’ long’