Stocks traded narrowly mixed Thursday afternoon after trading slightly higher most of the session amid quiet pre-Christmas trading following several economic reports that were in line with expectations.
The Dow Jones Industrial Average traded flat, retreating from a new 2010 high, after rising modestly in the previous sessionto another two-year high.
Bank of America, Walt Disney and Travelers declined, while Alcoa and Chevron rose.
The S&P 500 and the Nasdaq also fell. Both had closed at new highs on Wednesday. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose nearly 9 percent to nearly 17.
Among key S&P sectors financials, consumerdiscretionary and industrials fell, while materials and energy rose.
Trading has been light all week ahead of the Christmas holiday, but the markets have continued to hold strong gains as the year nears a close. The Dow has risen about 5 percent for December and 10.9 percent for the year-to-date. The S&P 500 has risen 6.63 percent for the month, and 12.9 percent for the year-to-date. The Nasdaq rose 6.9 percent for December, and 17.7 percent for the year-to-date.
"A lot of folks are happy with their performance, and they are willing to stand pat and take this performance and wait until January rolls around," said Benny Lorenzo, chairman and CEO of Kaufman Brothers, a New York investment bank.
Lorenzo expects the Federal Reserve's plans to stimulate the economy with bond purchases, coupled with tax cuts, bode well for an economic recovery. In fact, he expects more than 100,000 jobs will have been added to nonfarm payrolls in December, a figure above consensus estimates.
Other positives for stocks include a more pro-business posture in Washington and the return of retail investors to stocks, Lorenzo said.
"The retail investor abandoned equities for bonds, and the flows of capital have just turned positive in terms of coming into equity funds in the last few months," he said.
Oil prices continued to trade above $90 a barrel, close to their highest level in two years, as inventories shrank and cold weather boosted demand. Also, pipeline supplies to Europe from Russia were partly halted after a pipeline caught fire.
The news lifted some energy stocks, including Devon Energy , Cabot Oil & Gas and Exxon Mobil .
Meanwhile, gold slipped nearly 1 percentto close at $1,380 an ounce, erasing most of the week's gains.
Financials lagged as investors took in some profits after a month-long rally that had sparked a nearly 17 percent rise in the KBW Bank index . Major banks including Bank of America and Citigroup traded lower.
Boeing shares rose after news the airline company resumed flight testing of the 787 Dreamliner.
General Electric traded flat after the parent company of CNBC said it expects its deal with Comcast will close in January, instead of the end of December, as previously expected.
Bed, Bath & Beyond jumped after the home goods retailer reported forecast-beating quarterly profitafter the bell Wednesday. In addition, at least five brokerages raised their price targets on the firm.
But Micron fell after the semiconductor firm reported a 24 percent drop in profits and sales that were lower than expected. Also, Credit Suisse cut its price target on the firm to $10 from $15.
In M&A news, Jo-Ann Stores soared more than 30 percent after the fabric and crafts retailer agreed to be bought by private equity firm Leonard Green & Partners for about $1.6 billion, or $61 per share. The offer prices is a 34 percent premium to the fabrics and crafts retailer's closing price on Wednesday.
Rio Tinto is buying Riversdale, an Australian coal company, for $3.9 billion.
And Rovi has agreed to acquire Sonic Solutions in a stock and cash deal of about $720 million. By combining companies, Rovi should better help studios sell content for digital entertainment.
Ericsson fell after Goldman Sachs cut the telecom equipment supplier to "neutral" from "buy," citing its high stock valuation, and prospects for pricing pressure in 2011.
Meanwhile, Tesla Motors shares tumbled more than 7 percent after CapStone Investments initiated coverage of the electric-car maker with a "sell" rating.
Crocs fell more than 5 percent after the maker of plastic clogs said its CFO had resigned, effective Dec. 31.
Office Depot shares climbed for a second day after the office supplies retailer filed "change in control" paperwork with the SEC, sparking takeover rumors.
Media company Nielsenwill launch an initial public offeringnext month, CNBC reported, citing people familiar with the matter. Nielsen had filed for the IPO this past June.
This comes after a long waiting period for children's retailer Toys"R"Us and hospital giant HCAHoldings, which filed for IPOs around the same time.
Among this morning's economic reports, sales of new homes rose at a slower pace than expected, core durable goods orders were at the highest level since March, consumer sentiment was upbeat in December, and jobless claims dropped to 420,000.
Initial claims for unemploymentdropped for the second time in three weeks, falling to a seasonally adjusted 420,000 in the week ended Dec. 18, the Labor Department reported.
The four-week average, rose slightly to 426,000. The average had fallen for six straight weeks to the lowest level in more than two years.
Also, personal spending rose 0.4 percent in November, a more moderate pace since the 0.7 percent increase seen in October, but a sign that consumers continue to spend, according to Commerce Department data. Personal income, meanwhile, rose 0.3 percent, thanks to rising stock portfolios.
Markets will be closed on Friday in observance of Christmas.
European shares retreated from a 27-month high, while the euro fell to a three-week low against the dollaramid persistent concern about debt troubles in Europe, though analysts said strong technical support levels could limit a near-term downside.
Fitch downgraded the ratings for Portugalto A+ from AA- following Moody's warning of a similar ratings downgrade two days ago. Also, Fitch cut Hungary's long term foreign currency credit ratingto BBB- with a negative outlook.
Allied Irish Bank plunged 20 percent after the Irish government detailed plans to recapitalize the firm—the country’s fourth nationalized bank.
On Tap For Next Week:
MONDAY: Texas manufacturing outlook survey, Chicago Fed Midwest manufacturing index, 2-yr Treasury note auction.
TUESDAY: S&P Case-Shiller home price index, consumer confidence, Richmond Fed business activity survey, 5-yr note auction.
WEDNESDAY: MBA mortgage applications, oil inventories, 7-yr note auction.
THURSDAY: Jobless claims, Chicago PMI, pending home sales, farm prices, money supply, Massey CEO Blankenship retires.
FRIDAY: No major economic data expected.
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