U.S. stocks fell on Thursday with the major indexes down more than 2 percent after a surprisingly grim earnings report from Microsoft Corp and economic data that showed further deterioration in the labor and housing markets.

Microsoft, raising worries over how it would fare in the economic slowdown, said it would cut up to 5,000 jobs over the next 18 months and that it could no longer offer profit forecasts for the rest of the fiscal year. The stock was among the Dow’s biggest drags, falling 8 percent.

“It is a negative surprise for the market, certainly from a bellwether technology company. For Microsoft to miss its guidance, it brings home the pervasive fallout from the credit crisis,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research in Cincinnati, Ohio.

“On Wednesday, we had been able to bounce from the 8,000 level on the Dow. This (Microsoft news) makes it inevitable to retest the November lows for the market.”

The results, which had been expected to be released later in the day, added to the already negative tone after data showing the number of workers filing new claims for jobless benefits rose by more than expected last week, while housing starts and permits fell to a record low in December, data showed.

The Dow Jones industrial average fell 195.30 points, or 2.37 percent, to 8,032.80. The Standard & Poor’s 500 Index was down 21.20 points, or 2.52 percent, at 819.04. The Nasdaq Composite Index gave up 48.55 points, or 3.22 percent, to 1,458.52.

Investors were watching for a vote by the U.S. Senate Finance Committee on the nomination of Timothy Geithner to be Treasury secretary.

Geithner faced tough questioning at his confirmation hearing before the committee on Wednesday. Wall Street had originally cheered Geithner’s nomination but the choice has since come under controversy over Geithner’s failure to pay some taxes.

NEW YORK, Jan 22 (Reuters)