Stocks dropped sharply today, breaking the Dow Jones industrials’ four-day winning streak as investors fretted over a rise in unemployment claims and the prospect of more bank failures. The Dow fell 112 points.

The chairman of the Federal Reserve, Ben Bernanke, said in testimony to Congress that while large American banks will likely recover from the recent credit crisis, other banks are at risk of failing. Three small American banks have already failed since the summer, when the lending industry started losing billions of dollars as mortgage defaults soared.

“Implying that some banks may fail stirs concerns for any investor who’s familiar with financial and economic history,” the chairman and chief investment officer of Johnson Illington Advisors, Hugh Johnson, said. “Investors have been very edgy about credit market conditions and banks’ financial conditions. Very edgy. And this doesn’t remove that edginess.”

Earlier, stocks had fallen in response to a Labor Department report that first-time unemployment claims rose last week by 19,000 to 373,000, the highest level since late January.

An equity strategist for A.G. Edwards & Sons, Scott Wren, said he still believes there’s less than a 50% chance of a recession, but that it’s clear employers are cautious about hiring.

“To consistently see claims up near 400,000, that’s pretty telling often-times of a recession,” he said.

Following four straight days of gains in the Dow — its longest run of gains so far this year — the blue-chip index sank 112.10, or 0.88%, to 12,582.18.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index declined 12.34, or 0.89%, to 1,367.68, and the Nasdaq composite index lost 22.21, or 0.94%, to 2,331.57.