Stocks rebounded off their session lows but finished the day lower, with the Dow briefly turning positive as home builders rose sharply while Merck helped lead a rally in health care shares.
The Dow fell more than 100 points early in the session, turned it around later, but was never able to hold its ground as the index fell for the sixth consecutive day.
Investors continued to be in a largely sour mood, though, prodded even more so by minutes released Wednesday from the Federal Reserve's June meeting that showed central bank policy makers unwilling to enact fresh quantitative easing stimulus.
"The market has been pretty well in a swooning semi-tantrum since (Fed Chairman) Ben Bernanke and Co. didn't come forth in launching QE3," said John Stoltzfus, chief market strategist at Oppenheimer. "With the lows that we've been seeing on the 10-year Treasury, there's a certain absurdity" to buying bonds over stocks.
"People are beginning to think that maybe it's time to take some action," he added.
Though the Dow and S&P flirted with positive numbers, losers were ahead of gainers on the session, which featured light total volume of just over 3 billion shares changing hands.
Half of the 10 sectors on the S&P 500 were positive, with health care, consumer staples and utilities leading a rise in defensive categories, while financials and technology kept the index in the red.
A government report showing that last week fell 26,000 to their lowest level in four years did little to assuage worries.
Traders generally dismissed the report as an outlier due to seasonal distortions from the holiday-shortened week. Americans celebrated the Fourth of July but probably took less time off than normal to make the occasion.
"Unfortunately, this more than four-year low is not a clear signal of labor market improvement," said Jeffrey Greenberg, an economist at Nomura Securities in New York. "The first week of July is typically when the automobile industry shuts down plants and conducts annual 'retooling.' Seasonally-adjusting data during a holiday week is complicated enough. Add the retooling to this and the adjustment for the...holiday week becomes especially imperfect."
On the Dow, only 10 of the 30 components traded on the positive side, but big gainers such as Merck and Procter & Gamble were strong enough to take the bluechip index positive.
Merck surged after the company said an advanced clinical study of its osteoporosis drug met its primary goals.
McDonald's also helped to resuscitate the index with a mid-day gain off positive expectations for its monthly sales numbers.
Intel, Hewlett-Packard and American Express fared worst of the bluechips.
In the home builders group, Lennar and Toll Brothers led the way higher, with a positive forecast from widely followed industry analyst Ivy Zelman helping.
"Our survey results give us added confidence that the housing market is in the early innings of a strong and sustainable recovery, with no apparent impact thus far from recent macro fears," Zelman said in a note to clients.
Infosys made a deeper-than-expected cut to its sales forecast on Thursday as global economic uncertainty took a toll on tech spending, sending its shares down 10 percent and slamming hopes for a second-half recovery.
The prevailing dim global economic climate, competition for a bigger share of the outsourcing business and sharp currency fluctuations have slowed the pace of growth for Indian outsourcing companies and in recent quarters Infosys has been underperforming key rivals.
Shares of Sears Holdings also slumped after Cleveland Research said the company's domestic sales trends look weak so far in the second quarter.
Supermarket operator SuperValu tumbled on news that it is considering selling all or part of the business to pay off debt and lower prices after seeing a 45 percent drop in first-quarter earnings.
On the plus side, Texas Industries surged after the company broke a 10-quarter streak of losses and posted a quarterly profit of $2.15 a share.
In corporate news Apple’s next-generation iPhone has not even been released yet, but sellers on China's largest e-commerce platform, Taobao, are already accepting pre-orders, complete with mock-up pictures and purported technical specifications.
Asian and European shares all fell overnight in response to the lack of Fed policy action.
Meanwhile, Japan's Nikkei share average posted its biggest fall in over a month after the Bank of Japan only offered minor tweaks to its easing strategy.
—By Jeff Cox, CNBC.com senior writer.
—Reuters contributed to this report.