Stocks traded slightly down from record highs despite a batch of positive economic reports, including a surprising jump in pending home sales and a burst in Midwest manufacturing activity.
The Dow Jones Industrial Average fell more than 20 points, a day after the major indexes closed at or near multi-month highs.
American Express , Microsoft, and DuPont fell, while Intel and Alcoa rose.
The S&P 500 and the Nasdaq also fell slightly. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 17.
Among key S&P sectors, financials, utilities and health care fell, while energy and telecom rose.
As of the close Wednesday, the Dow rose 5.3 percent for December and 11.1 percent for the year-to-date. The S&P 500 rose 6.7 percent for the month, and nearly 13 percent for the year-to-date. The Nasdaq rose 6.8 percent for December, and 17.5 percent for the year-to-date.
In a positive sign for the equity markets, $335 million flowed into U.S. stock funds for the week ended Dec. 21, the first sign of inflows in nearly three years, according to the Investment Company Institute, a mutual fund trade group. Bond funds, meanwhile, had outflows of about $4.37 billion, the ICI said.
The week before, 2.4 billion flowed out of U.S. equity funds, while $8.6 billion flowed out of bond funds. Analysts expect investors to move into stock fundsas bonds and emerging markets lose favor.
Volume continued to be extremely light, even for a holiday week, with trading at less than half of normal levels. That, combined with the steady upward trend for equities, may be contributing to some market weakness on Thursday in the face of economic data largely confirming the economy is strengthening.
"I don’t think there’s any conviction to the market’s move so far today," said Brian Gendreau, market strategist at Financial Network.
The weakness also reflects the fact markets rarely go up day-after-day, but the trend, Gendreau said, remains positive as stock valuations are "between inexpensive and reasonable," the earnings forecast is good, and the economy seems to be picking up.
"The foundations are in place for a reasonably good year," he said.
Anadarko Petroleum jumped after a report in the U.K.'s Daily Mail that BHP Billiton may bid $90-a-share for the oil and natural gas producer. The newspaper cites unnamed sources.
Theprice of a barrel of oilfirmed but remained below recent highs of more than $91 after the government said crude stocks fell by 1.26 million, which was less than forecasted, but far better news than the build-up of 3 million reported by an industry group on Wednesday.
The energy sector, however, continued to trade at record highs. The leading energy stocks included Cabot Oil & Gas , Haliburton and Sunoco .
3M was down slightly after news the state of Minnesota sued the diversified manufacturer for contaminating the state's waters for decades.
Goldman Sachs and Morgan Stanleyslipped slightly lower Thursday after Credit Suisse lowered fourth quarter earnings estimates for the investment banks. Citing "persisting choppy market conditions," among other factors.
T. Rowe Price , meanwhile, rose after Stifel Nicolaus raised its price target for the investment manager to $74 a share from $59, and its earnings-per-share view for 2011 to $3.24 a share from $3.15, citing the flow of investor assets back into stocks.
Shares of Ford declined slightly after news the automaker was recalling 14,737 new vehicles because of the possibility of an electric short.
In health-care news, Endo Pharmaceuticals rose after news the U.S. Food and Drug Administration has approved a gel to treat men with low levels of testosterone.
The New York Times is reporting that Groupon, the social coupon site, may go public in 2011. On Tuesday, the company's board authorized Group to raise up to $950 million in funding, according to a recent Delaware regulatory filing. Google reportedly tried to buy the Chicago company for between $5 billion and $6 billionbut was rejected in early December.
The dollar fell against a basket of currencies, while the euro rose after a European Central Bank Governing Council member said the European Stability Mechansim should come into force before 2013, if possible.
Meanwhile, the Chinese yuan reached a new high against the dollar after the People's Bnak of China set a higher mid-point for the currency.
Pending home sales jumpedmore than expected last month, although sales were still below normal levels, the National Association of Realtors said Thursday. The National Association of Realtors Pending Home Sales Index, based on contracts signed in November, rose 3.5 percent to 92.2 from a downwardly revised 89.1 in October. Sales, however, were 5 percent lower than last year.
Economists expected pending home sales to rise 2 percent, according to Reuters.
The Institute for Supply Management-Chicago's business index soared to 68.6 in Decemberfrom 62.5 a month earlier, boosted by gains in employment and new orders.
Economists surveyed by Reuters had expected this measure of Midwest manufacturing activity to drop to 61.
And initial claims for jobless benefits fell to 388,000 for the week ended Dec. 25 from a revised upward 422,000, a 29-month low, the Labor Department reported. Economists surveyed by Reuters had expected claims to fall to between 415,000 and 420,000. The 4-week moving average for claims fell 12,500 to 414,000.
The markets didn't react much to news as economists say seasonal factors add volatility to the numbers.
November pending home sales data will be released at 10 a.m. with economists looking for a 1.5 percent rise, according to Reuters. Crude inventory figures will be released at 1 p.m.
In global markets,
Asian stocks ended mostly higher, but Japanese indexes saw declines. Data showed that Chinese factory inflation eased in December, suggesting the country's government can stick to its gradual monetary tightening policy.
European shares were lower in the wake of the Chinese data. Oil related stocks led the declines.
On the Calendar:
THURSDAY: Farm prices, money supply, Massey CEO Blankenship retires.
FRIDAY: No major economic data expected.
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