Stocks finished narrowly mixed in thin trading Thursday as the earlier bounce from a better-than-expected jobless claims report fizzled.
Major averages are on pace for their biggest weekly drop in more than four months.
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"There's more profit taking going on…this might be the continuation of the recent pullback, " said Alan Valdes, director of floor operations at DME Securities. "Volume's been light and there's still the usual uncertainty regarding the election, 'fiscal cliff' and Europe." (Read More: US Is Nearing Fiscal Disaster: 'Congress Can Be This Stupid' )
The Dow Jones Industrial Average edged down 18.58 points, or 0.14 percent, to close at 13, 326.39, posting its fourth-straight losing streak. BofA led the blue-chip gainers, while AT&T and Disney lagged. The Dow was up as much as 83 points earlier in the session.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, slipped below 16.
Among the key S&P sectors, energy andbanks gained, whiletelecoms and consumer discretionary lagged.
On the economic front, weekly jobless claims tumbled 30, 000 to a seasonally adjusted 339, 000, hitting the lowest level since February 2008 , according to the Labor Department. Economists polled by Reuters had forecast claims edging up to 370, 0000 last week. The four-week moving average for new claims fell 11, 500 to 364, 000.
However, the report may have been distorted by one state not posting its claims number for the week as expected. A Labor Department spokesman said the state accounted for much of the decline , but did not name the state.
"I was told the state not revealed subtracted 30, 000 from the weekly initial jobless claims figure, " wrote Peter Boockvar, managing director at Miller Tabak. "This would take the 'adjusted' number to 369, 000, about in line with the original expectations of 370, 000. The mix up was due to a 'timing issue' in delivering data to the Labor Department."
Last Friday, the Labor Department reported that the unemployment rate fell to 7.8 percent in September, dropping below 8 percent for the first time in nearly four years.
"[The jobless claims report] continues with the positive greeting we received on Friday and it's going to remove the conspiracy theories and uncertainties, " said Todd Schoenberger, managing principal at The BlackBay Group. "What's great is that even if the data's volatile, it's good for stocks and it shows that this positive employment data has some traction."
Adding fuel to the rally, Citigroup boosted its rating on U.S. equities to "overweight."
"The combination of even easier central bank policy and cheap valuation should ensure global markets rally a further 9 percent to the end of 2013, " Citi wrote in its research note.
Apple fell near correction territory again after a federal appeals court reversed an injunction that barred rival Samsung from selling its Galaxy Nexus smartphone.
Sprint surged nearly 15 percent after the telecom company confirmed that it is in talks with Japan's Softbank. Softbank is looking to acquire a majority stake in Sprint in a deal worth nearly $12.8 billion . Rivals Verizon and AT&T edged lower.
Caterpillar bobbed in and out of negative territory after RBC Capital downgraded the company to "sector perform" from "outperform, " citing headwinds including elevated inventories both for Caterpillar and the overall earth-moving equipment industry, in addition to weakness in Europe and China.
Stock photography agency Shutterstock and real estate services provider Realogy both surged in their market debut on the NYSE.
Financial giants JPMorgan and Wells Fargo are scheduled to post earnings on Friday.
IMF head Christine Lagarde said Greece should be allowed extra time to meet its budget goals.
Standard & Poor's downgraded the country's debt rating to one notch above junk grade and put the country on negative outlook. The Spanish IBEX initially fell, but rebounded to finish higher. Market participants hope the agency's move will push Madrid to request a formal bailout. European shares ended higher.
Meanwhile, central banks in Brazil and South Korea cut rates by a quarter percentage point.
On the economic front, U.S. trade deficit increased to $44.2 billion in August, mostly in line with analyst expectations, according to the Commerce Department. Overall exports dropped amid European concerns, while imports slipped slightly.
Treasury prices remained weak after the Treasury Department auctioned $13 billion of 30-year bonds at a high yield of 2.904 percent and bid-to-cover, an indicator of demand, was 2.49.
— By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
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