Stocks dropped on reports of the lost jobs and a lower-than-expected reading for a manufacturing index.

The week began with a stock rally and good economic news, as an important manufacturing index shot to its highest level in two decades.

Investors, though, focused yesterday on the manufacturing index.

But, she added, "we have not seen sales increases that support that level of improvement," referring to the jump in the manufacturing index.

The association's manufacturing index rose to 50.1, compared with 46.9 in March, and in line with market expectations.

The institute reported on Tuesday that its manufacturing index in August remained at 50.5.

The manufacturing index fell to 46.2 in March from 50.5 in February.

Last month, its manufacturing index jumped to 54.30, its highest level since November 1997.

While the national manufacturing index did decline, it fell only to 49.5 from 50.5 in August.

The institute's manufacturing index rose to 53.8, from 51.4 percent in May.