Stocks rebounded from earlier losses to finish narrowly mixed Thursday, with the S&P adding small gains to the New Year rally, ahead of a key government employment report.
Stocks had been under pressure earlier in the session amid ongoing jitters over the European debt crisis and a decline in the euro to its lowest level since September 2010.
The Dow Jones Industrial Average slipped 2.72 points, or 0.02 percent, to close at 12,415.70, erasing most of its 134-point decline earlier.
BofA and JPMorgan led the blue-chip winners, while Boeing lagged.
The S&P 500 edged up 3.76 points, or 0.29 percent, to end at 1,281.06. The Nasdaq jumped 21.50 points, or 0.81 percent, to finish at 2,669.86.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, finished below 22.
Financials were the biggest gainers among the S&P sectors, while energy slumped.
“The road to recovery in Europe continues to be bumpy and if we see a domino effect there, investor and consumer confidence in the U.S. will tank,” said Mike Schenk, VP of Economics at CUNA.
The euro dropped below $1.28 against the U.S. greenback for the first time since September 2010as markets refocused on concerns about the euro zone debt crisis. Investors continue to be skeptical over European banks' ability to raise capital amid the region's debt crisis.
European banks declined sharply, including Unicredit, Deutsche Bank and Credit Suisse .
A French debt auction got decent demand but yields edged up, reflecting concerns that France may lose its triple-A credit rating.
That followed a mediocre German bond auction on Wednesday, with Berlin attracting only slightly better demand than was seen at a disastrous sale last year.
Meanwhile, Hungary pledged to seek a fast agreement with international lendersto shore up its financial markets as the nation's currency and bonds fell further due to the government's widely-criticized policy course.
“We’ve had a lot of really good economic news over the past couple of months, but what troubles me most is that we do face a lot of uncertainty volatility going forward from Europe,” said Schenk. “Europe will continue to be a drag on economic growth this year, but won’t necessarily drag us into a recession.”
A handful of employment reports pointed to some encouraging news on the jobs front. The number of planned layoffs at U.S. firms fell to its lowest level since June, according to the report from consultants Challenger, Gray & Christmas. Meanwhile, private sector employment climbed 325,000 in December, much stronger than expected, according to payrolls processor ADP.
And claims for unemployment benefits dropped by 15,000 last weekto a seasonally adjusted 372,000, according to the Labor Department.
The three reports come ahead of Friday's all-important December non-farm payrolls report, a key indicator of whether the U.S. economic recovery is still on track. Economists expect a gain of 150,000 public and private sector jobs last month.
Also on the economic front, the pace of growth in the services sector picked up slightly in December, according to the Institute for Supply Management's services index.
Among retailers, Macy's , Limited and Zumiez , posted solid same-store sales resultsand boosted their earnings forecast.
However, Target fell after the big-box retailer missed expectations and lowered its outlook for the fourth quarter.
Defense stocks including Lockheed Martin , Raytheon and Northrop Grumman slid following President Obama's new slimmed-down military strategy.
Pepsi slipped following a report that the beverage giant may be considering axing nearly 4,000 employeesand lowering pension contributions in an effort to raise earnings.
Eastman Kodak continued to tumble following reports the firm is preparing a bankruptcy protection filingin case it is unable to sell its digital patents to raise capital.
Dendreon skyrocketed almost 40 percent after the biotech company reported its revenue soared by three times, thanks to its prostate cancer vaccine Provenge. The shares were briefly halted by circuit breaker.
Mosaic gained after the fertilizer producer posted better-than-expected earnings. Monsanto also rose after the agribusiness company topped profit estimates, helped by their growing business in South America and strong U.S. seeds orders ahead of spring planting.
Family Dollar is slated to post earnings after-the-bell tonight.
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