US STOCKS-Wall St drops as investors face stimulus impasse

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* Walgreens rises on 2021 profit growth forecast
* CBOE volatility index hits one-week high
* Weekly jobless claims unexpectedly rise in latest week
* Indexes: Dow -0.10%, S&P 500 -0.32%, Nasdaq -0.79%

(Updates to afternoon)
By Noel Randewich
Oct 15 (Reuters) - U.S. stocks dropped on Thursday as a rise
in weekly jobless claims compounded worries about a stalling
economic recovery and fading hopes for more fiscal aid before
the election.
The number of Americans filing new claims for jobless
benefits rose to a two-month high last week, stoking fears the
COVID-19 pandemic was inflicting lasting damage to the labor
market. A separate report showed manufacturing activity in New York
State fell more than expected in October. "Going into the fall it will be difficult for unemployment
to make a lot of positive headway because of the lack of
stimulus," said Christopher C. Grisanti, chief equity
strategist, MAI Capital Management in Cleveland.
President Donald Trump said he is willing to raise his offer
of $1.8 trillion for a COVID-19 relief deal with Democrats in
the U.S. Congress, but the idea was shot down by his fellow
Republican, Senate Majority Leader Mitch McConnell. The CBOE volatility index .VIX , investors' fear gauge, hit
a one-week high and Wall Street's indexes fell for the third
straight day. The S&P 500 is down about 3% from its Sept. 2
record high close.
With less than 20 days until the Nov. 3 election, Trump and
Democratic challenger Joe Biden are set to hold dueling
prime-time town halls on Thursday instead of their second
presidential debate, which was canceled after Trump declined to
take part in a virtual matchup. "More of what moves the market will be the crystallizing of
who is going to win the presidency, and how close the Senate
races are," said Tom Martin, senior portfolio manager
at Globalt Investments in Atlanta.
A Biden presidency, coupled with a Democratic Senate, would
likely mean a larger fiscal stimulus plan than what a
Republicans Senate would agree to. However, Biden is also widely
seen on Wall Street as likely to raise taxes.
Focus is also on the quarterly results for corporate
America, with expectations for third-quarter earnings improving
to an 19% drop from a 25% tumble forecast on July 1, according
to Refinitiv IBES data.
Morgan Stanley MS.N edged 1.4% higher after it beat
third-quarter profit estimates, winding up mixed results from
major U.S. lenders. Recent bank earnings reports saw those
focused on trading clocking big gains, while retail banks took a
hit from the COVID-19 pandemic. The S&P 500 financials index .SPSY added 0.6%, while
communication services .SPLRCL fell nearly 1%, the steepest
decline among 11 sectors.
The Dow Jones Industrial Average .DJI was down 0.1% at
28,484.1 points, while the S&P 500 .SPX lost 0.32% to
3,477.54.
The Nasdaq Composite .IXIC dropped 0.79% to 11,675.81.
Walgreens Boots Alliance Inc WBA.O gained 4% as the
drugstore chain forecast single-digit profit growth in 2021
after reporting a better-than-expected fourth-quarter profit.
The S&P 1500 airlines index .SPCOMAIR shed 1.7% after
United Airlines UAL.O reported a 78% drop in quarterly
revenue. Shares of drug developer Vertex Pharmaceuticals Inc VRTX.O
sank 20% after it discontinued its trial of a protein deficiency
disorder treatment.
Declining issues outnumbered advancing ones on the NYSE by a
1.06-to-1 ratio; on Nasdaq, a 1.10-to-1 ratio favored decliners.
The S&P 500 posted 13 new 52-week highs and no new lows; the
Nasdaq Composite recorded 47 new highs and 30 new lows.