On the economic front, weekly jobless claims popped 28,000 last week to a seasonally adjusted 385,000, hitting its highest level in four months, according to the Labor Department. It was the third straight week of gains in claims. Economists polled by Reuters had expected first-time applications last week to fall to 350,000.
Adding to the negative jobs news, outplacement firm Challenger, Gray & Christmas said layoffs surged 30 percent in the first quarter from a year ago, even though March furlough activity declined.
Both reports came ahead of the widely-followed government non-farm payrolls report, due Friday. Economists surveyed by Reuters expect to see a gain of 200,000, with the unemployment rate steady at 7.7 percent.
(Read More: Job Insecurity High as Layoffs Show Surge)
In company news, Best Buy soared to lead the S&P 500 leaders after the consumer electronics retailer said it is offering a 30 percent discount on its current stock of Apple iPad 3 tablets, raising speculation that there could be a major launch of a new iPad in the near term. In addition, retailer said it would collaborate with Samsung to open kiosks in its Best Buy stores.
Facebook climbed as the social-networking giant unveiled its "Home" software that will integrate the website with Android users' smartphones, a move that may divert users from Google's services. (Read More: Mobile Move: Facebook Introduces Phone)
Meanwhile, Google dipped below its 50-day moving average. The last time the Internet giant closed below the level was October 18.
"If you are looking to buy names that have pulled back 8 to 10 percent from their highs, you have to be very selective. Many of them have broken trend line support and their 50 day moving averages," wrote Spar. "We prefer names where the technicals have held and where earnings estimates are moving higher."
In Europe, the European Central Bank (ECB) left its benchmark unchanged at 0.75 percent for the ninth month in a row.
In a press conference, ECB President Draghi said the central bank could not replace a lack of capital in the banking system and that it could not compensate for a lack of reforms by euro zone governments. He also said economic weakness was spreading to countries where fragmentation was not an issue.
(Read More: Central Bank Efforts May 'End in Tears': El-Erian)