Stocks ended mixed as the Dow's rally skidded to a halt as retailers reported weaker-than-expected December sales.
The Dow Jones Industrial Average fell 25.58 points, or 0.2 percent, to close at 11,697.31 after closing at multi-year highs the previous session following a surprising rise in private sector jobs.
Verizon Travelers and AT&T slid, while Microsoft and Boeing advanced.
The S&P 500 fell 2.71 points, or 0.2 percent, to close at 1,273.85, while the tech-heavy Nasdaq gained 7.69 points, or 0.3 percent, to close at 2,709.89. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 17.
Among key S&P 500 sectors, telecom, energy and consumerdiscretionary slipped while technology gained.
Commodities continued to be skittish, contributing to weakness in energy and materials stocks.
Gold declined for a fourth consecutive session to close about $1,371 an ounce. Copper fell 1.8 percent to about $4.32.
Most gold miners traded lower, led by
AngloGoldand
GoldFields.
The dollar , meanwhile, gained against a basket of currencies, as the euro fell to a five-month low against the U.S. currency.
"The market has done so well over the last month or two...so maybe there’s just a little bit of fatigue," said Neal Karchem, senior equity analyst at Bel Air Investment Advisors.
Several defense stocks rose despite cuts announced by U.S. Defense Secretary on Thursday. Raytheon , Lockheed Martin and General Dynamics all gained.
Energy stocks declined, led by Weatherford International and Anadarko Petroleum as oil prices slipped below $89 a barrel.
Massey Energy slipped after brokerage Howard Weil cut the coal producer's rating to "market perform" from "market outperform."
But BP gained after investors in the troubled oil firm shrugged off a White House reportthat blamed the firm in addition to Transocean and Halliburton for cost cutting decisions that led to the largest offshore oil spill in history. The White House commission said BP and its partners in the Macondo oil well didn't have a system to ensure their procedures were safe.
And ExxonMobil edged higher after Oppenheimer upgraded the oil giant to "outperform" with a $90 price target, citing increasing oil prices which will allow the firm to accelerate its share repurchases and grow its dividend.
Tech stocks offered one of the few bright spots in Thursday's market, led by Microsoft, Microsoft which announced that it would use chip designs fromARM Holdings in the latest version of its Windows operating system. Shares of ARM jumped.
The announcement came at the start of the annual Consumer Electronics Show (CES) in Las Vegas, which was generating some buzz throughout the tech sector.
CES 2011 - Your Digital Life - A CNBC Special Report
"This year a lot of focus on tablets and smartphones, and everything in that food chain is starting to do well," Karchem at Bel Air said.
As a result, many semiconductors advanced, including Nvidia , NetLogic and Trident Microsystems . Raymond James raised its price target on Nvidia to $24 from $19.
The newly created Motorola Mobility , the wireless device segment of the former Motorola, jumped after unveiling Xoom, a tablet product that uses Google's Android operating system. Google shares also advanced.
Meanwhile, Research In Motion slipped a day after the BlackBerry maker rolled out its version of the tablet, called Playbook.
Apple traded flat after the iPod maker opened its store of downloadable programs for its Mac computers, with more than 1,000 apps available for downloading.
Meanwhile, most retailers traded lower after reporting disappointing December salesas cautious consumers spent their money carefully, and a Northeast blizzard stole from post-Christmas sales. Overall, retail sales rose 3.1 percent in December, just shy of the 3.4 percent analyst estimate reported by Thomson Reuters.
Some notable sales shortfalls were among the large retailers such as Target, Macy's and Gap. Other department stores didn't fare much better, including JC Penney and Kohl's.
Teen retailers American EagleOutfitters, Wet Seal and Zumiez, also reported disappointing numbers although Limited's results were better-than-expected. The winner among teen retailers was Abercrombie & Fitch, which reported same-store sales jumped 17 percent.
On the financial front, shares of Citigroupgarnered attention as the once struggling bank's shares traded around $5 a share.
Goldman Sachs fell after news bond insurer ACA Financial Guaranty filed suit against the investment bank in connection with a synthetic collateralized debt obligation called ABACUS 2007-AC1 which Goldman Sachs created and sold on behalf of Paulson & Co., a hedge fund, in 2007. ACA is seeking $30 million in compensatory and $90 million in punitive damages.
Bank of America advanced after the financial giant said it was going to start hitting customers with new fees associated with costs incurred from the Dodd-Frank financial reform legislation.
Homebuilders including D.R. Horton , Pulte Homes , Toll Brothers and Beazer Homes advanced after a mixed batch of ratings views.
Barclays Capital cut the sector to "neutral" from "positive," saying that an increase in housing-related stocks since late November leaves little upside for most housing stocks this year. Barclays stressed that the call is "not a function of increased pessimism" around the housing market.
Wells Fargo, however, kept its market weight rating on the homebuilding sector, saying it was somewhat more positive on the stocks. Wells Fargo raised D.R. Horton to "outperform" from "market perform" and Standard Pacific to "market perform" from "underperform." The brokerage cut MDC Holdings and Toll Brothers, however.
Meanwhile, KB Homes will report earnings before the market opens on Friday.
GM advanced after Morgan Stanley said "GM has the potential to one day produce the earnings and cash flow required to justify a valuation closer to $100 than $50." The brokerage currently has a price target of $50 for the automaker, one of the highest on the Street.
Ford shares rose as the automaker plans to unveil its latest electric Ford Focus at CES Friday following rivals GM, Nissan and others in the electric car race.
In earnings news, Monsanto rose after the agricultural biotech giant reported results largely in line with expectations, and reaffirmed earnings goals for the full year.
Constellation Brands declined more than 6 percent even after the largest wine company in the world reported a stronger-than-expected quarterly profit.
Moody's jumped after the bond rating company raised its profit forecast, citing heavy U.S. debt issuance and investor demand for junk bonds. The firm also boosted its revenue estimate.
Volume on the consolidated tape of the New York Stock Exchange reached 4.7 billion shares, while on the NYSE floor, 1.1 billion shares changed hands. Declines led advances 3 to 2.
On the economic front, initial claims for unemployment rose by 18,000 last weekto 409,000, up from an upwardly revised 391,000 the week before, the Labor Department said. Economists surveyed by Reuters had expected claims to rise to 400,000, from a previously reported 388,000. The four-week moving average for claims, however, fell 3,500 to 410,750, the lowest level since July 2008.
Now the market will turn attention to the release of nonfarm payroll data on Friday. The government is expected to report payrolls rose by 175,000, up from only 39,000 in November, while the unemployment rate is expected to fall to 9.7 percent from 9.8 percent, according to Reuters.
Goldman Sachs chief economist Jan Hatzius expressed doubts about the methodology used by ADP to assess private sector employment and said he expects a below-consensus growth of 100,000 nonfarm jobs.
"Despite our generally upbeat view on the economy, which continues to be reinforced by incoming data, we view the dramatic improvement shown in the ADP report with skepticism," Hatzius wrote in a note to clients.
European shares were broadly higher with banking stocks leading the gains. China upped its holdings of euro zone debt, including that of Spain's troubled economy, signaling its support for the region, the Chinese Commerce Ministry said. Asian indexes were mixed at the close, but the Nikkei 225 ended sharply higher.
On the Calendar This Week:
FRIDAY: Nonfarm payrolls report, consumer credit; Fed Chairman Bernanke speaks, Fed Vice Chairman Janet Yellen speaks.
More From CNBC.com: