(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window.) * Weekly jobless claims rise unexpectedly last week * Smallcaps, transports down most * Didi, other U.S.-listed Chinese firms drop * Indexes down: Dow 0.94%, S&P 0.84%, Nasdaq 0.53% (New throughout, updates prices, market activity and comments to late afternoon, changes dateline, byline) NEW YORK, July 8 (Reuters) - Wall Street fell sharply on Thursday from the previous session’s record closing high, on a broad sell-off fueled by uncertainties surrounding the pace of the U.S. economic recovery. As the bond market rallied on a flight to safety, all three major U.S. stock indexes turned sharply lower early but pared losses by late afternoon. The S&P 500 and the Nasdaq retreated from a series of all-time closing highs. “We are now down to the levels of yesterday at noon, as crashes go that’s not so bad,” Brad McMillan, chief investment officer for Commonwealth Financial Network in Waltham, Massachusetts. “If that’s a crash, I can live with it.” “This is a normal pull-back,” McMillan added. “People are saying ‘maybe things are not perfect’ and they’re taking some money off table, but I don’t think this is the end to the upside.” Economically sensitive smallcaps and transports were down the most. The Dow Jones Industrial Average fell 326.2 points, or 0.94%, to 34,355.59, the S&P 500 lost 36.5 points, or 0.84%, to 4,321.63 and the Nasdaq Composite dropped 78.29 points, or 0.53%, to 14,586.77. Sensing cracks in the U.S. economic recovery, traders covered short positions in the bond market. The yield of the benchmark 10-year U.S. Treasury note fell for the eighth consecutive session. In Tokyo, a fresh outbreak of the Delta COVID-19 variant prompted organizers of the Olympics to ban spectators from the event, reviving fears about global health crisis. The Olympics are “a high-profile event that people can hang their fears on,” said McMillan. “Everyone has moved on from the pandemic in their heads, but maybe we’re not out of the woods.” The number of U.S. workers filing first-time applications for unemployment benefits unexpectedly ticked up to 373,000 last week, a sign that the U.S. labor market recovery remains choppy. On Wednesday, the U.S. Federal Reserve released minutes from its latest monetary policy meeting, which showed the central bank does not yet believe the economy has fully recovered, yet a debate on tightening policy has begun in earnest. Beijing’s ongoing clampdown on U.S.-listed Chinese companies fed into the risk-averse mood. Since China’s opening salvo over the weekend against ride-hailing app Didi Global Inc, Beijing has extended its scrutiny beyond the tech sector. Didi shares were last down 4.3%, while Alibaba Group and Bidu Inc both of which were most recently off 3.4%. All 11 major sectors of the S&P 500 were red, with financials suffering the largest percentage loss. Big banks are due to kick off second-quarter reporting next week, launching what analysts expect to show aggregate year-on-year earnings growth of 65.4%, up from the 54% growth seen at the beginning of the quarter, according to Refinitiv. Declining issues outnumbered advancing ones on the NYSE by a 3.28-to-1 ratio; on Nasdaq, a 2.03-to-1 ratio favored decliners. The S&P 500 posted 21 new 52-week highs and no new lows; the Nasdaq Composite recorded 33 new highs and 147 new lows. (Reporting by Stephen Culp; Additional reporting by Ambar Warrick and Devik Jain in Bengaluru; Editing by David Gregorio) Our Standards: The Thomson Reuters Trust Principles.