Stocks wavered Thursday as investors weighed oil's retreat against a dismal manufacturing reading and a slew of analyst downgrades.
The Dow Jones Industrial Average briefly fell below 12000 after the Philadelphia Federal Reserve reported regional manufacturing activity slowed more than expected in June.
Economic indicators -- especially those from June -- are being watched extra closely ahead of the Federal Reserve's policy-setting meeting next week.
"The big thing we're concerned about right now is they want the numbers that are good enough so you don't fall into a recession, but at the same time, you want the numbers to be weak enough so it's unlikely to have the Fed raising [rates]," Doug Roberts, chief investment strategist at Channel Capital Research, told Reuters.
U.S. light, sweet crude oil slipped about $3, trading between $133 and $134 a barrel. Shares of energy stocks, including Dow components ExxonMobil and Chevron, declined.
AIG, helped alleviate pressure on the Dow after Citigroup raised its rating on the stock to "buy" from "hold," saying the insurer is undervalued -- even if its earnings don't grow -- and the stock is poised for a 35 percent jump in the next 12 months.
Initial jobless claims fell by 5,000 last week, though the four-week moving average ticked higher. Leading indicators rose for a second straight month, climbing 0.1 percent in May, the Conference Board reported.
Treasury Secretary Henry Paulson spoke at a luncheon event, urging that, in the wake of Bear Stearns's collapse, the Fed be given new powers to regulate Wall Street.
Meanwhile, two former Bear Stearns hedge-fund managers were arrested on charges of securities fraud and are expected to be indicted for their role in the collapse of two hedge funds that helped kick off the credit crisis last year.
Financials came under pressure once again amid news of more writedowns and a couple of analyst downgrades.
Citigroup shares tumbled after CEO Gary Crittenden told investors on a Detusche Bank investor conference call that the bank could take substantial write-downs in the second quarter.
Morgan Stanley was off more than 1 percent after Oppenheimer analyst Meredith Whitney cut her earnings forecast for 2008 and 2009.
Adding to Morgan's woes, the firm is expected to take a $120 million revenue hit after a suspected rogue trader incorrectly valued his positions in the credit-derivatives market, the Financial Times reported on Thursday.